M/S N.A.M. EXPRESSWAY LIMITED,DELHI V. ACIT., CIRCLE-5(1), HYDERABAD

ITA 580/HYD/2024

AI Insights

The case involves N.A.M.Expressway Ltd., which appealed against the order of the PCIT, Hyderabad, revising the assessment for the assessment year 2018-19. The PCIT had initiated revisionary proceedings under section 263, claiming that the Assessing Officer had not properly examined certain issues during the assessment, leading to an erroneous and prejudicial assessment order. The Tribunal examined whether the PCIT was justified in revising the assessment order, focusing on the adequacy of the examination of the issues by the Assessing Officer and the application of relevant provisions of the Income Tax Act.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 29066 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-B
• Assessment Year: 2018-2019
• Other Referred Cases: PCIT Vs Cartier Leaflin Private Ltd., Malabar Industries Co.Ltd, Director of Income Tax Vs. (2013) 357 ITR 388 (Delhi), Dena Bank Vs.PCIT-2, Mumbai, Casa Builders Pvt.Ltd. vs PCIT-1, Kolkata, CIT vs Gabriel India Ltd, CIT vs Sunbeam Auto Ltd
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHIVA SEWAK
• Assessee Lawyers: SALIL KAPOOR
• Keywords: Set aside; Opportunity of being heard; Revenue expenditure; Question of law; Bad and doubtful debts; Depreciation; Capital expenditure; Assessment record; Revision of order; Bogus
• Section: 143(3); 142(1); 263; 43; 2; 43B; 37(1)

Judgement Text

" आयकर अपीलीय अधिकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘B’ Bench, Hyderabad Before Shri Manjunatha G., Accountant Member and Shri K.Narasimha Chary, Judicial Member आ.अपी.सं /ITA No.580/Hyd/2024 (निर्धारण वर्ा/Assessment Year: 2018-19) N.A.M.Expressway Ltd. Delhi [PAN : AADCN3131D] Vs. ACIT, Circle-5(1) Hyderabad (Appellant) (Respondent) निर्धाररती द्वधरध/Assessee by: Shri Salil Kapoor, Ms Ananya Kapoor & Shri Tarun Chanana, AR (through virtual mode) रधजस् व द्वधरध/Revenue by: Shri Shiva Sewak, CIT-DR सुिवधई की तधरीख/Date of Hearing: 30/10/2024 घोर्णध की तधरीख/Date of Pronouncement: 28/01/2025 आदेश / ORDER PER. MANJUNATHA G., A.M: This appeal filed by the assessee is directed against the order dated 20.03.2019 of the learned Principal Commissioner of Income Tax [Ld.PCIT], Hyderabad-4 pertaining to A.Y.2018-19 on the following grounds : 1. That on the facts and circumstance of the case and in law, order dated 31 March 2024, passed under section 263 of Income-of the Income tax Act, 1961 (“the Act”), 1961 (“the Act”) by Principal Commissioner of Income Tax [Hon'ble PCIT] is bad in law and liable to be quashed. 2 ITA No.580/Hyd/2024 M/s N.A.M.Expressway Limited 2. That, on the facts and circumstances of the case and in law, Hon'ble PCIT has erred in initiating revisionary proceedings on the ground that subject issues have not been examined properly by Assessing Officer during course of assessment proceedings. 3. That, on the facts and circumstances of the case and in law, Hon'ble PCIT has erred in holding that amortization of finance cost of INR 1,87,34,666 is not allowable under the Act. While doing so, Hon'ble PCIT has also erred in directing the Ld.AO to take action in other AYs as well where similar claim is made by appellant. 4. That, on the facts and circumstances of the case and in law, Hon'ble PCIT erred in stating that grant income of INR 11,16,49,597 is not to be considered while computing amortization under the Act read with CBDT Circular 09/2014. The above grounds are independent and without prejudice to each other. The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. 2. The brief facts of the case are that the assessee company, engaged in the business of road development and collection of toll from such roads, has filed its return of income for the A.Y.2018-19 on 22.09.2018, declaring loss of Rs.81,04,82,331/-. The case was selected for scrutiny under CASS and Faceless Assessing Officer (“FAO”) of National Faceless Assessment Centre (“NFAC”), Delhi has completed the assessment u/s 143(3) r.w.s.144B of the Income tax Act, 1961 (“the Act”) on 21.04.2021 and assessed total loss at 3 ITA No.580/Hyd/2024 M/s N.A.M.Expressway Limited Rs.80,63,83,770/-, by making disallowance u/s 43B of the Act for Rs.40,76,414/-. 3. The case has been subsequently taken up for revision proceedings and accordingly, show cause notice u/s 263 of the Act dated 04.01.2024 was issued to the assessee, to show cause as to how the assessment order passed u/s 143(3) dated 21.04.2021 should not be revised or set aside. In the show cause notice, the Ld.PCIT observed that from the Profit & Loss account, an amount of Rs.10,07,13,291/- was reduced from taxable income towards Ind AS adjustment and the same has been reported in Form 3CD, column 13(e) under ICDS IV adjustment. However, as seen from the Profit & Loss account, only an amount of Rs.1,98,00,000/- was debited towards other comprehensive income for the year net of income tax. Instead of reducing Rs.1,98,00,000/-, the assessee company claimed and was allowed to reduce Rs.10,07,13,291/-, which resulted in excess allowance of loss of Rs.8,09,13,291/-. The Ld.PCIT further observed that the assessee company claimed deduction of Rs.85,35,36,495/- towards amortization u/s 37(1) of the Act and reported at column 33 of ITR as any other amount allowable as deduction of Schedule BP under computation of income from business and profession. However, from the working of amortization under the Act, from the F.Y.2013-14 to F.Y.2017-18 submitted by the assessee, revealed that the total amortization allowable under the Act for the F.Y.2016-17, relevant to A.Y.2017-18 was only Rs.73,93,93,738/-. Since the 4 ITA No.580/Hyd/2024 M/s N.A.M.Expressway Limited assessee company claimed and was allowed excess amortization claim of Rs.11,41,42,757/- (Rs.85,35,36,495 – 73,93,93,738) towards amortization in the A.Y.2017-18 u/s 37(1) of the Act, the same has cascading effect on the closing block of intangible assets and subsequent amortization allowable for future assessment years, resulted in excess claim of WDV of intangible assets of Rs.10,79,53,813/-. This point has not been verified by the Assessing Officer with relevant provisions of law, which resulted in excess allowance of loss. The Assessing Officer, NFAC proceeded to complete the assessment without proper examination of the above facts, thereby, resulting in an assessment, that is not only erroneous and also prejudicial to the interest of the Revenue. Therefore, issued show cause notice and called upon the assessee, to explain as to why the assessment order dated 21.04.2021 shall not be revised or set aside. 4. In response, the assessee has filed detailed submissions on the issue, which has been reproduced in para 4 on pages 3 to 8 of the Ld.PCIT order. According to the assessee, the assessment order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of the Revenue, because, both the issues discussed by the Ld.PCIT in the show cause notice have already been examined by the Assessing Officer during the assessment proceedings, which is evident from the notice u/s 142(1) of the Act dated 11.01.2021, along with annexure to said notice, for which the assessee has 5 ITA No.580/Hyd/2024 M/s N.A.M.Expressway Limited submitted detailed submissions on 20.01.2021 and explained the issues to the Assessing Officer. The Assessing Officer, after considering the relevant facts has completed the assessment, without making any adjustment and therefore, it cannot be said that the assessment order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the Revenue. 5. The Ld.PCIT, after considering the submissions of the assessee and also taking note of relevant facts observed that the assessment order passed by the FAO of NFAC is erroneous, in so far as it is prejudicial to the interest of the Revenue on the issue of deduction allowed towards adjustment made under ICDS for Rs.10.07 crores and also deduction allowed towards amortization u/s 37(1) of the Act for Rs.85.35 crores, as against Rs.73.93 crores, because the Assessing Officer failed to examine the issues in right perspective of law with relevant material, which rendered the assessment order erroneous, in so far as it is prejudicial to the interest of the Revenue. Therefore, set aside the assessment order and directed the Assessing Officer to verify the issues discussed in the show cause notice and pass consequential order after affording reasonable opportunity to the assessee. 6. Aggrieved by the order of the PCIT, the assessee is now in appeal before the Tribunal. 6 ITA No.580/Hyd/2024 M/s N.A.M.Expressway Limited 7. The learned counsel for the assessee, Sri Salil Kapoor, Advocate, submitted that the Ld.PCIT erred in law and on facts to assume jurisdiction and set aside the assessment order passed by the Assessing Officer u/s 143(3) r.w.s.144B of the Act dated 21.04.2021 on the issue of reduction of income by way of adjustment to ICDS IV and also amortization of expenses u/s 37(1) of the Act, without appreciating the fact that both the issues have been thoroughly examined by the Assessing Officer, which is evident from the notice issued u/s 142(1) dated 11.01.2021 and reply submitted by the assessee dated 21.01.2021. The assessee has explained the issue of ICDS adjustment towards grant received from Government in light of CBDT Circular 9 of 2014 dated 23.04.2014, where the accounting treatment of government grant has been explained and as per which, any grant received from the Government to meet part of cost of an asset, shall be reduced from the cost of asset for the purpose of depreciation or amortization. The assessee has reduced the grant received from Government towards road development from the cost of the asset and the balance amount has been claimed as amortization over the period. This fact has been explained to the Assessing Officer. Further, the assessee had also explained the total amount of adjustment under ICDS, which consists of three components i.e. unwinding of interest on major maintenance expense, amortization of finance cost on long term borrowings and government grant. Although the assessee has debited unwinding of interest on major maintenance expense to Profit & 7 ITA No.580/Hyd/2024 M/s N.A.M.Expressway Limited Loss account, but has disallowed under ICDS adjustment. Similarly, the assessee has credited Government grant into Profit & Loss account, however, because of reduction of entire amount of grants from the cost of the asset, the same has been reduced from the total income. Similarly, the assessee has incurred finance and other incidental cost of borrowings and the same has been amortised over a period in their books of account. However, for the purpose of computation of income, since there is no provision of incidental and other expenses to be amortised as per IT Act, the entire amount of expenditure has been claimed as deduction. This fact has been explained to the Assessing Officer. The learned counsel for the assessee, further submitted that the assessee had also explained amortization u/s 37(1) of the Act and it has claimed amortization of expenses of Rs.80,61,60,684/-, after reducing Government grant, if any, received for the project in accordance with law. The Assessing Officer after considering the relevant facts has rightly allowed the claim of the assessee. Therefore, the assessment order passed by the Assessing Officer cannot be treated as erroneous and prejudicial to the interest of the Revenue. 8. The learned counsel for the assessee further submitted that the amortisation expenses of Rs.85,35,36,495/- consist of three expenses i.e., one is for amortization of cost of road development expenses of Rs.73.93 crores in terms of Circular 9/2014 issued by CBDT, second is amortization of preliminary 8 ITA No.580/Hyd/2024 M/s N.A.M.Expressway Limited expenses of Rs.24.93 lakhs u/s 35D of the Act and the last one is grant income disclosed in the books and allowable under the Act for Rs.11.16 crores. If we go by the method of accounting followed by the assessee, the assessee has rightly amortised cost of construction of roads, in terms of CBDT Circular 9/2014 and the amortization claimed as per section 35D of the Act, towards government grant is in accordance with the accepted accounting principles. Therefore, proposed revision of assessment order on the ground that there is excess allowance of loss on account of amortisation and ICDS adjustment is incorrect. The Ld.PCIT, without appreciating relevant facts simply set aside the assessment order passed by the Assessing Officer, therefore, the order passed by the Ld.PCIT should be quashed. 9. The Ld.CIT-DR, on the other hand, supporting the order of the Ld.PCIT submitted that the assessment order passed by the Assessing Officer is erroneous, in so far as it is prejudicial to the interest of the Revenue, which is clearly evident from the facts brought on by the Ld.PCIT with relevant reasons, which clearly shows that the Assessing Officer has failed to carry out enquiries in terms of explanation 2 to section 263 of the Act. Although the assessee claims that the Assessing Officer has examined the issue in light of submissions made by the assessee, but the fact remains that the Assessing Officer failed to apply relevant provisions of law in light of facts of present case, which caused prejudice to the interest of the Revenue. 9 ITA No.580/Hyd/2024 M/s N.A.M.Expressway Limited Therefore, he submitted that the order passed by the Ld.PCIT should be upheld. The Ld.CIT-DR had also distinguished various case laws relied upon by the assessee and submitted that those case laws are not applicable to the facts of the case. 10. We have heard both the parties, perused the material on record and gone through the orders of the authorities below. We have also carefully considered the relevant case laws referred to by both the parties in support of their contentions. The Ld.PCIT assumed jurisdiction u/s 263 of the Act and set aside the assessment order passed by the Assessing Officer u/s 143(3) of the Act dated 21.04.2021 and directed the Assessing Officer to reexamine the issue of ICDS adjustment of Rs.10.07 crores and amortization expenses u/s 37(1) of the Act, in light of amortization claimed for the A.Y.2017-18 and amortization claimed for the A.Y.2018-19 under consideration. According to the PCIT, although the assessee reported other income of Rs.1.98 crores, but has claimed reduction of Rs.10.07 crores towards Ind AS impact, which resulted in excess loss of Rs.8.09 crores. The Ld.PCIT further observed that as per the Profit & Loss account for A.Y.2017-18, the assessee company claimed deduction of Rs.85.35 crores towards amortization u/s 37(1) of the Act, whereas, the total amortization allowable for the assessment year 2017-18 was only Rs.73.93 crores. Since the company claimed and was allowed excess amortization and the cascading effect resulted in excess claim of WDV of intangible assets of Rs.11.41 crores for the year under consideration. 10 ITA No.580/Hyd/2024 M/s N.A.M.Expressway Limited Therefore, the Ld.PCIT opined that failure to verify the issues in right perspective of law, in terms of explanation 2 to section 263(1) of the Act, renders the assessment order passed by the Assessing Officer erroneous and prejudicial to the interest of the Revenue. 11. The provisions of section 263 of the Act deals with revisionary powers of the Principal Commissioner or Commissioner. As per section 263 of the Act, the Ld.PCIT may conduct enquiry or call for relevant information and after giving opportunity of being heard to the assessee, pass order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment, if the said assessment is prejudicial to the interest of the Revenue. Explanation 2 to section 263 defines the circumstances, under which the assessment order can be treated as erroneous and as per the said explanation, the order passed by the Assessing Officer shall be deemed to be erroneous, in so far as it is prejudicial to the interest of the Revenue, if in the opinion of the Principal Commissioner, the order passed is without making enquiries or verification, which should have been made and so on. From the plain reading of the said provisions, it is abundantly clear that in order to invoke jurisdiction u/s 263 of the Act, the twin conditions embedded there in must be satisfied, i.e. firstly, the order is erroneous and secondly, the same is also prejudicial to the interest of the Revenue. Whether a particular assessment order passed by the Assessing Officer is 11 ITA No.580/Hyd/2024 M/s N.A.M.Expressway Limited erroneous or not, depends upon the subjective satisfaction of the Ld.PCIT. Before assuming jurisdiction, the PCIT should satisfy with valid reasons that the assessment order passed by the Assessing Officer on particular issue is erroneous, which caused prejudice to the interest of the Revenue. Unless the PCIT brings out the reason and explain how the assessment order passed by the Assessing Officer is erroneous then, in our considered view, simply for the purpose of further verification, the assessment order cannot be set aside, in terms of section 263 of the Act and this legal principle is supported by plethora of judicial precedents including the decision of Hon'ble Supreme Court in the case of PCIT Vs Cartier Leaflin Private Ltd. (2023) 146 taxmann.com 281 (SC), wherein, Hon'ble Supreme Court dismissed the SLP filed by the department against Hon'ble High Court order and accepted the fact that, where due enquiry was made by the Assessing Officer during the assessment proceedings by applying his mind and accepted the claim of operating loss, which was a possible view, there was no basis to invoke revisionary proceedings on the ground that the books of accounts and transactions of share trading activity carried out by the assessee vis-à-vis the D-mat accounts of the assessee have not been examined by the Assessing Officer during the assessment proceedings. This principle, further supported by the decision of Hon'ble Supreme Court in the case of Malabar Industries Co.Ltd (2000) 243 ITR 83 (SC), wherein, it is clearly held that in order to invoke jurisdiction u/s 263, the order of the ITO in question, must not only be erroneous but also the 12 ITA No.580/Hyd/2024 M/s N.A.M.Expressway Limited error in the order of the ITO must be of such a kind, that it can be said that it is prejudicial to the interest of the Revenue. In other words, merely, because, the Assessing Officer’s order is erroneous, the PCIT cannot interfere. Again, merely because, the order of the Assessing Officer is prejudicial to the interest of the Revenue then, again that is not enough to confer jurisdiction on the PCIT to interfere in revision. The sum and substance of the ratios laid down by various courts including the Hon'ble Supreme Court is that before invoking jurisdiction u/s 263, the PCIT must give reasons to come to a conclusion that the issues in question were not examined by the Assessing Officer, in light of relevant provisions of the Act and evidences placed on record. 12. In this legal background, if we examine the facts of the present case, it is undisputedly clear that during the course of assessment proceedings, the Assessing Officer had raised query vide notices with respect to both the issues discussed by the PCIT in his show cause notice, which is evident from the notice issued u/s 142(1) of the Act dated 11.01.2021, where, the annexure to said notice contains questions pertaining to details of amortization expenses of Rs.80.61 crores and relevant computations and further details with regard to deduction of Rs.10.07 crores on account of Ind AS adjustment. The assessee vide letter dated 20.01.2021 had explained the issue with detailed submissions and the Assessing Officer after considering the relevant submissions of the assessee has completed the 13 ITA No.580/Hyd/2024 M/s N.A.M.Expressway Limited assessment u/s 143(3) of the Act on 21.04.2021, without any adjustment on the issues discussed by the Ld.PCIT. From the above, it is very clear that the Assessing Officer has thoroughly examined the issues in light of relevant provisions of the Act and has taken a plausible view and therefore, in our considered view, merely for the reasons that the Assessing Officer has not discussed the issue in the body of the assessment order, the PCIT cannot assume jurisdiction and hold that the assessment order passed by the Assessing Officer is erroneous, in so far as it is prejudicial to the interest of the Revenue. 13. Coming back to two issues questioned by the PCIT in 263 proceedings. According to the Ld.PCIT, the Assessing Officer has allowed excess allowance of loss of Rs.8.09 crores towards Ind AS adjustment. The assessee has claimed Ind AS adjustment of Rs.10.07 crores and reduced from the total income, while computing the income from business and profession and which consist of three items of income and expenditure. The assessee has debited Rs.2.93 crores towards unwinding of interest on major maintenance expenses on the ground that no expenditure has been incurred for the year under consideration and it is only, the provision in the books. The assessee has reduced Rs.11.13 crores towards government grant and credited to Profit & Loss account. The assessee has received Government Grant towards construction of roads and the same has been reduced from the cost of the asset for claiming amortization over the period of concessionaire 14 ITA No.580/Hyd/2024 M/s N.A.M.Expressway Limited agreement in terms of section 43 of the Income Tax Act coupled with CBDT Circular 9/2014. In this regard, the assessee has filed details and explained that the total grant received from the Government has been reduced from the cost of construction of roads and balance amount has been amortised and debited to Profit & Loss account. Since the grant from the government has been accounted in the books of accounts, the same has been amortised over the period of concessionaire agreement and credited to Profit & Loss account. Since the amortization was net of grants, the assessee has reduced the income credited to Profit & Loss account towards said grant in the statement of total income. In our considered view, the method of accounting followed by the assessee for treatment of Government grant in the books of accounts and for the purpose of income computation and disclosure standards is in accordance with ICDS standards and therefore, adjustment made in the statement of total income cannot result in any excess allowance of loss for the year under consideration. Similarly, the assessee has incurred finance charge, processing fees, other financial charges etc. totalling to Rs.4.24 crores, on account of secured term loans and the same has been amortised over a period of two years including the year under consideration. The assessee has debited a sum of Rs.2.36 crores in the Profit & Loss account for the year under consideration out of Rs.4.24 crores and the balance amount of Rs.1.87 crores has been deferred to subsequent financial year in the books of accounts. Further, for the purpose of computation of income, deduction has been 15 ITA No.580/Hyd/2024 M/s N.A.M.Expressway Limited claimed for total amount of Rs.4.32 crores. This fact has been explained right from the beginning, We find that the accounting treatment given for finance and other charges in the books of accounts and deduction claimed towards entire amount of charges in the statement of total income is in accordance with the provisions of the Act. From the details furnished by the assessee and discussion herein above, in our considered view, there is no excess allowance of loss as claimed by the Ld.PCIT in his show cause notice towards Ind AS impact of Rs.10.07 crores. Therefore, we are of the considered view that the Ld.PCIT erred in setting aside the assessment order on this issue. 14. Coming back to the second issue discussed by the Ld.PCIT. The Ld.PCIT observed that the assessee claimed deduction of Rs.85.35 crores towards amortization u/s 37(1) for the A.Y.2017-18 as against Rs.73.93 crores and because of this cascading effect for the year under consideration was Rs.10.79 crores, on account of excess claim of WDV of intangible assets. The assessee has explained the issue in light of relevant notes to account and provisions of the Act. According to the assessee, for the A.Y.2017-18, it has claimed amortization of Rs.85.35 cores which consist of three items. i.e, amortization of intangible asset u/s 37(1) and Circular 9/2014 issued by CBDT for Rs.73.93 crores, amortisaiton of preliminary expenses u/s 35D of the Act for Rs.24.93 lakhs and adjustment towards grant income disclosed in the books allowable under the Act for Rs.11.16 crores. Going by the explanation furnished by the assessee, in 16 ITA No.580/Hyd/2024 M/s N.A.M.Expressway Limited light of relevant financial statements, we find that the Ld.PCIT himself misread the financial statements and claimed that the assessee has claimed excessive amortization of Rs.85.35 crores instead of Rs.73.93 crores towards amortization of intangible assets, without considering other two items of amortisation claimed by the assessee. From the reasons given by the assesse, in light of explanation of the learned counsel for the assessee, we find that the Ld.PCIT, without any reason, simply set aside the assessment order on this issue to the Assessing Officer for further verification. In our considered view, the Ld.PCIT does not have any power to set aside the assessment order for further verification. Going by the plain reading of section 263, it is very clear that the Ld.PCIT can set aside the assessment order, if the said assessment is prejudicial to the interest of the Revenue and the prejudice caused to the Revenue is to be brought on record with reasons. In the present case, the Ld.PCIT without discussing as to how the deduction claimed u/s 37(1) for amortization has caused prejudice to the interest of the Revenue, simply came to the conclusion and claimed that the Assessing Officer has allowed excess claim of WDV of intangible assets, without properly reading the financial statements of the assessee. From the reasons given by the Ld.PCIT, we find that the Ld.PCIT has not applied his mind before invoking jurisdiction u/s 263 of the Act. In our considered view, the explanation 2 to section 263 has given power to the PCIT to revise the assessment order, if the PCIT satisfies that the order is passed without making enquiries or verification, which 17 ITA No.580/Hyd/2024 M/s N.A.M.Expressway Limited should have been made, but such conclusion can be drawn only on the basis of reasons given by the Ld.PCIT, to prove that because of erroneous order passed by the Assessing Officer, the lawful revenue payable to the Government has not been paid. Therefore, we are of the considered view that, even on this count also, assumption of jurisdiction by PCIT and setting aside the assessment order in terms of section 263 of the Act is incorrect. 15. Coming back to various case laws relied upon the assessee. The assessee relied upon the decision of Hon'ble Supreme Court in the case of Malabar Industries Co.Ltd (2000) 243 ITR 83 (SC). Hon'ble Supreme Court in light of provisions of section 263 held as under : 18 ITA No.580/Hyd/2024 M/s N.A.M.Expressway Limited 19 ITA No.580/Hyd/2024 M/s N.A.M.Expressway Limited 16. The assessee had also relied on the decision of Hon'ble Delhi High Court in the case of Director of Income Tax Vs. (2013) 357 ITR 388 (Delhi) Hon'ble Delhi High Court in light of section 263 held as under : 17. The assessee had also relied upon the decision of ITAT Mumbai in the case of Dena Bank Vs.PCIT-2, Mumbai in ITA No.2159/Mum/2018. The ITAT, in light of provisions of section 263 and explanation 2 held as under : “10. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. The Ld.PCIT has revised assessment order passed u/s 143(3) of the I.T.Act, 1961 on four issues. The Ld.PCIT has questioned deductions allowed towards bad debt written off under the provision of section 36(1)(vii) & (viia), including newly inserted Explanation (2) to section 36(1)(vii) of the I.T.Act, 1961. Likewise, the Ld.PCIT has questioned payment towards contribution to gratuity fund and deduction claimed u/s 43B, amount paid to RBI towards penalty for violation of KYC norms and deduction claimed towards provision for wage arrears. 20 ITA No.580/Hyd/2024 M/s N.A.M.Expressway Limited According to the Ld. PCIT, the Ld. AO has not conducted required enquiries to be conducted under respective provisions of the Act, which rendered the assessment order erroneous, insofar as it is prejudicial to the interest of the revenue. It is the contentions of the assessee that the assessment order passed by the Ld. AO is neither erroneous, nor prejudicial to the interest of the revenue, because the Ld. AO has completed the assessment proceedings, after thoroughly examined all four issues questioned by the Ld.PCIT in 263 proceedings, which is evident from the fact that insofar as, bad debt written off is concerned, the Ld. AO has discussed the issue at para 7 of his assessment order and after considering relevant facts and also, taken note of opening balance of provision for bad and doubtful debt account has allowed the claim of bad debt written off, in respect of non rural advances. Further, at the time of consideration of the issue, the newly inserted Explanation(2) to section 36(1)(vii) was very much on in the statue. Therefore, the Ld.PCIT is incorrect in stating that the Ld. AO ought to have conducted required enquiries, in light of Explanation (2) to section 263 of the I.T.Act, 1961. Insofar as, other three issues, even though there is no specific reference to those items in the assessment order passed by the Ld. AO, but it was an undisputed fact that the details with regard to issues were made available to the Ld. AO at the time of assessment proceedings, which is evident from the fact that the assesee has given a detailed note in statement of total income, which is part of income tax returns filed for the year, where it has narrated, how and why payment of Rs. 54 crores towards gratuity fund is allowable on actual payment, in light of provisions of section 43B of the Act, Similarly, the assessee has also narrated the facts and how, said payment is allowable u/s 37(1), in respect of penalty paid to RBI for violation of KYC norms. Likewise, a detailed note has been annexed regarding deductibility of provision for wage arrears amounting to Rs. 96 crores, these are part of assessment records. Therefore, we are of the considered view that it is not a case of the Ld.PCIT that the Ld. AO had not considered those issues at all, at the time of assessment proceedings, which results in erroneous order passed by the Ld. AO, which caused prejudice to the interest of the revenue. In any way, all the four issues questioned by the Ld.PCIT were thoroughly examined by the Ld.AO during the assessment proceedings, and after considering relevant facts and explanations furnished by the assessee has chosen to accept the claim of the assessee and hence, the same cannot be termed as non consideration of issues or the Ld. AO has failed to 21 ITA No.580/Hyd/2024 M/s N.A.M.Expressway Limited carry out required enquiries, which ought to have been carried out in accordance with law. 11. The language used by the Legislature in s. 263 is to the effect that the Ld.PCIT may interfere in revision, if he considers that the order passed by the ITO is erroneous, in so far as it is prejudicial to the interests of the Revenue. It is quite clear that two things must coexist in order to give jurisdiction to the PCIT to interfere in revision. The order of the ITO in question must not only be erroneous but also the error in the ITO order must be of such a kind that it can be said of it that it is prejudicial to the interests of the Revenue. In other words, merely because the officer's order is erroneous, the PCIT cannot interfere. Again, merely because the order of the officer is prejudicial to the interests of the Revenue, then again, that is not enough to confer jurisdiction on the PCIT to interfere in revision. These two elements must co-exist, this is because, the first of the two requirements namely, (i) the order is erroneous and (ii) the same is also prejudicial to the Interests of the Revenue, is not satisfied. Similarly, if an order is erroneous but not prejudicial to the interests of the Revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be the subject matter of revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. 12. The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interests of the Revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the PCIT does not agree, it cannot be treated as an erroneous order prejudicial to the Interests of the Revenue unless the view taken by the ITO is unsustainable in law. An order of assessment passed by the ITO without making necessary enquiries on certain important points connected with the assessment would be erroneous and prejudicial to the interests of the Revenue, when the ITO is expected to make an enquiry of a particular item of income and he does not make an enquiry as 22 ITA No.580/Hyd/2024 M/s N.A.M.Expressway Limited expected, that would be a ground for the PCIT to interfere with the order passed by the ITO since such an order passed by the ITO is erroneous and prejudicial to the interests of Revenue, but, the ITO had made enquiries in regard to the nature of the expenditure incurred by the assessee who had given detailed explanation in that regard by a fetter in writing and all these are part of the record of the case and the claim was allowed by the ITO on being satisfied with the explanation of the assessee such, decision of the ITO cannot be held to be erroneous simply because in his order he did not make elaborate discussion in that regard 13. It is a settled principle of law that in order to invoke, the provisions of section 263 of the I.T.Act, 1961, the Ld.PCIT shall ascertain from the records that twin conditions embedded in said provision i.e, the order of the Ld. AO is erroneous and it is prejudicial to the interest of the revenue are to be satisfied. The term erroneous has been subject matter of litigation and in order to put an end to the same, the legislature vide Finance Act, 2013 inserted Explanation (2) to section 263 in which it has been declared, when order shall be deemed to be erroneous. The said explanation contains four clauses (a) to (d), to determine, whether the impugned order is erroneous in the opinion of the PCIT. In light of above legal position, if you examine the facts of the present case, it can be said that it is only clause (a) and (b) are relevant and other two clauses are not relevant to decide, whether the order passed by the Ld.AO is erroneous, in light of newly inserted Explanation (2). Clause (a) deals with circumstances where the order has been passed without making enquiries or verification, which should have been made. In this case, from the facts, it can be seen that there was an enquiry by the Ld. AO, in respect of all issues and the assesee had also furnished a detailed reply. Therefore, we are of the considered view that this clause is not applicable in this case. Clause (b) of the Explanation deals with circumstances, where the order is passed allowing any relief without enquiring into the claim. In this case, from the facts, it can be seen that the relief has been allowed only after making enquiries. Therefore, this clause has also not applicable in this case. Therefore, we are of the considered view that the conditions to invoke the powers u/s 263 of the Act are not satisfied and hence, the Ld.PCIT was erred in invoking the scope of provisions of 263 of the I.T.Act, 1961. Further, assuming for a moment, but not accepting in order to invoke 263, the other conditions, which is to be satisfied 23 ITA No.580/Hyd/2024 M/s N.A.M.Expressway Limited is that the order should be prejudicial to the interest of the revenue, because in respect of bad debts claim, if any deduction allowed u/s 36(1) (vii) of the Act, then when the recovery of the same in subsequent years needs to be offered to tax u/s 41(4) of the Act. In respect of payment towards contribution to the gratuity fund, whether or not deduction is allowed in full on payment basis in this year, but the same needs to be allowed in subsequent years, if said payment is not allowed during the year under consideration. Likewise, provision for wage arrears is also liable to be allowed, when the actual payment has been made. In this case, the assessee has made payment of the wage arrears in the subsequent years. Therefore, we are of the considered view that invocation of jurisdiction u/s 263 on these issues is also incorrect. 14. Coming back to case laws relied upon by the assessee. The assesee has relied upon the decision of ITAT, Mumbai, in the case of Casa Builders Pvt.Ltd. vs PCIT-6 (supra). We find that the Tribunal has considered an identical issue, in light of provisions of section 263 and also by following various judicial precedents, including the decision of Hon’ble Bombay High Court, in the case of CIT vs Gabriel India Ltd 203 ITR 108 held as under: 11. The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interests of the Revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the ITO is unsustainable in law . An order of assessment passed by the ITO without making necessary enquiries on certain important points connected with the assessment would be erroneous and prejudicial to the interests of the Revenue When the ITO is ITA 2463/Mum/2015 expected to make an enquiry of a particular item of income and he does not make an enquiry as expected, that would be a ground for the CIT to interfere with the order passed by the ITO since such an order passed by the ITO is erroneous and prejudicial to the interests of Revenue. Where the ITO had made enquiries in 24 ITA No.580/Hyd/2024 M/s N.A.M.Expressway Limited regard to the nature of the credit received by the assessee who had given detailed explanation in that regard by a letter in writing and all these are part of the record of the case and the claim was allowed by the ITO on being satisfied with the explanation of the assessee such decision of the ITO cannot be held to be erroneous simply because in his order he did not make an elaborate discussion in that regard. 12. Coming to the case laws relied upon by the assessee. The assessee has relied upon the decision of Hon'ble Bombay High Court in the case of CIT vs Gabriel India Ltd (supra). We find that the Hon'ble Bombay High Court in the said judgement observed that in order to exercise jurisdiction u/s 263, the Commissioner must have material to prima facie come to the conclusion that the order of ITO is erroneous as also prejudicial to the interest of the revenue. The relevant observations of the Court are as under:- \"The power of suo motu revision under sub-s. (1) of s. 263 is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub-section, viz., (i) the order is erroneous; (ii) by virtue of the order being erroneous prejudice has been caused to the interest of the Revenue. It has, therefore, to be considered firstly as to when an order can be said to be erroneous. An order cannot be termed as erroneous unless it is not in accordance with law. If an ITO acting in accordance with law makes certain assessment, the same cannot be branded as erroneous by the Commissioner simply because according to him the order should have been written more elaborately. This section does not visualise a case of substitution of judgment of the Commissioner for that of the ITO, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where ITO while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines 25 ITA No.580/Hyd/2024 M/s N.A.M.Expressway Limited the income either by accepting the accounts or by making some estimates himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and, ITA 2463/Mum/2015 left to the Commissioner, he would have estimated the income at a higher figure than the one determined by the ITO. That would not vest the Commissioner with power to re- examine the accounts and determine the income himself at a higher figure. It is because the ITO has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interest of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, namely, the order is erroneous, is absent. Similarly if an order is erroneous but not prejudicial to the interest of the Revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order can not be subject- matter c revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully eligible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. There must be material available on record called for by the Commissioner to satisfy him, prima facie, that the aforesaid two requisites are present. If not, he has no authority to initiate proceedings for revision. Exercise of power of suo motu revision under such circumstances will amount to arbitrary exercise of power. It is well- settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on records to satisfy it in that regard. If the action of the authority is challenged before the Court, it would be open to the Courts to 26 ITA No.580/Hyd/2024 M/s N.A.M.Expressway Limited examine whether the relevant objective factors were available from the records called for and examined by such authority. Any other view in the matter will amount to giving unbridled and arbitrary power to revising authority to initiate proceedinqs for revision in every case and start re- examination and fresh enquiries in matters which have already been concluded under the law. It is quasi-judicial power hedqed with limitation and has to be exercised subject to the same and within its scope and ambit. So far as calling for the records and examining the same is concerned, undoubtedly it is an administrative act, but on examination, \"to consider\", or in other words, to form an opinion that the particular order is erroneous in so far as it is prejudicial to the interest of the Revenue, is a quasi- judicial act because on this consideration or opinion the whole machinery of reexamination and reconsideration of an order of assessment, which has already been concluded and controversy about which has been set at rest, is again set in motion. It is an important decision and the same cannot be based on the whims or caprice of the revising authority. There must be materials available from records called for by the Commissioner.-- Parashuram Pottery Works Co. Ltd, vs. [TO 1977 CTR (SC) 32 : (1977) 106 ITR 1 (SC), Sirpur Paper Mills Ltd, vs. ITQ 1977 CTR (AP) 138 : (1978) 114 ITR 404 (AP), Dawjee Dadabhov & Co. vs. S.P. Jain & Anr. (1957) 31 ITR 872 (Cal) and Russell Properties 1M. Ltd, vs. A. Chowdhury, Addl. CIT (1977) 109 ITR 229 (Cal) relied on .\" 13. The assessee also relied upon the decision of Hon'ble Delhi High Court in the case of CIT vs Sunbeam Auto Ltd (supra). The Hon'ble Delhi High Court in the said judgment held that if the AO while making assessment has made an inadequate enquiry, that would not, by itself, give rise to Commissioner to pass ITA 2463/Mum/2015 order u/s 263, merely because he has different opinion in matter. It is only in case of lack of enquiry that such a course of action would be open. The relevant observations of the Hon'ble Court are as under:- 27 ITA No.580/Hyd/2024 M/s N.A.M.Expressway Limited \"The submission of the revenue was that while passing the assessment order, the Assessing Officer did not consider the aspect specifically whether the expenditure in question was revenue or capital expenditure. That argument predicated on the assessment order, which apparently did not give any reason 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 to the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reasons 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. 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 merely because he has different opinion in the matter. It is only in cases of 'lack of inquiry' that such a course of action would be open. [Para 12] In the instant case, the Assessing Officer had called for explanation on items in question from the assessee and the assessee had furnished his explanation. Said fact was even taken note of by the Commissioner himself in his order. [Para 13] That clearly showed that the Assessing Officer had undertaken the exercise of examining as to whether the expenditure incurred by the assessee in the replacement of dyes and tools was to be treated as revenue expenditure or not. It appeared that since the Assessing Officer was satisfied with the assessee's explanation, he accepted the same. [Para 14] Even the Commissioner conceded the position that the Assessing Officer made the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the Commissioner was that the Assessing Officer should have made further inquiries rather than accepting the assessee's explanation. Therefore, it could not be said that it was a case of ‘lack of 28 ITA No.580/Hyd/2024 M/s N.A.M.Expressway Limited inquiry'. [Para 15] The instant case was not a case where the Commissioner had concluded that the opinion of the Assessing Officer was clearly erroneous and not warranted on the facts before him, viz., the expenditure incurred was not the revenue expenditure, but should have been treated as capital expenditure. Even the Commissioner in his order passed under section 263 was not clear as to whether the expenditure could be treated as capital expenditure or it was revenue in nature. No doubt, in certain cases it may not be possible to come to a definite finding and, therefore, it is not necessary that in all cases the Commissioner is bound to express final view, but the least that was expected was to record a finding that order sought to be revised was erroneous and prejudicial to the interest of the revenue. No basis for that was disclosed. In sum and substance, accounting practice of the assessee was questioned. However, that basis of the order vanished in thin air when it was ITA 2463/Mum/2015 found that very accounting practice followed for a number of years had the approval of the income-tax authorities. Interestingly, even for future assessment years, the very same accounting practice was accepted. [Para 16] It was in that context, the question that assumed importance was as to whether powers could be exercised under section 263 when two views were possible. [Para 17] The matter could be looked from another angel. What was the material/ information available with the Assessing Officer on the basis of which he allowed the expenditure as revenue? It was disclosed to the Assessing Officer that the assessee was a manufacturer of car parts. In the manufacturing process, dyes were fitted in machines by which the car parts were manufactured. Those dyes were, thus, the components of the machines. Those dyes needed constant replacement, as their life was not more than a year. The assessee had also explained that since those parts were manufactured for the automobile industry, which had to work accurately at high speed for a longer period, replacement of those parts at short intervals became imperative to 29 ITA No.580/Hyd/2024 M/s N.A.M.Expressway Limited retain accuracy. Because of those reasons, those tools and dyes had a very short span of life and could produce maximum one lakh permissible shorts. Thereafter, they had to be replaced. With the replacement of such tools and dyes which were the components of a machine, no new assets came into existence, nor was their benefit of an enduring nature. It neither enhanced the life of existing machines of which these tools and dyes were only parts, nor had their production capacity increased. In CIT v. Mysore Spun Concrete Pipe (P.) Ltd.] 1992] 194 ITR 159/60 Taxman 170 (Kar.). the High Court held that the replacement of moulds was not in the nature of replacement of a capital machinery but in the nature of replacement of apart of the machinery which, in turn, was in the nature of maintenance of machinery installed in the factory. Such an expenditure was treated as revenue expenditure. With this position in law, it was clear that view taken by the Assessing Officer was one of the possible views and ,therefore, the assessment order passed by him could not be held to be prejudicial to the revenue. Such an order, thus, had rightly been set aside by the Tribunal. [Para 18] In the instant case, the purpose of replacing the dyes was to maintain the existing assets, viz., machines and not to bring a new asset. Moreover, case at hand was one of 'repairs of machinery'. The case proceeded on the controversy right from the order of the Assessing Officer till the Tribunal as to whether the expenditure was revenue or capital in nature. [Para 19] Likewise, whether the Commissioner should have recorded definite finding or not, may not be very relevant factor in the instant case where on the facts it was found that the opinion of the Assessing Officer in treating the expenditure as revenue expenditure was plausible and, thus, there was no material before the Commissioner to vary that opinion and ask for fresh inquiry. [Para 20] Thus, the conclusion would be that the order of the Tribunal did not call for any interference, as the question of law had rightly been decided. [Para 21] 30 ITA No.580/Hyd/2024 M/s N.A.M.Expressway Limited 14. In this view of the matter and respectfully following the ratios of case laws discussed hereinabove, we are of the considered view that the ITA 2463/Mum/2015 assessment passed by the AO is neither erroneous nor prejudicial to the interest of the revenue. Hence, we set aside the order passed by the PCIT and restore the assessment order passed by the AO u/s 143(3) of the Act. 15. The assessee has relied upon the decision of ITAT, Kolkata, in the case of Om Foregoing & Engineering Pvt.Ltd. vs PCIT-1, Kolkata (2017) 12 TMI 100. We find that the co-ordinate bench has considered an identical issue, in light of newly inserted Explanation (2) to section 263 and after considering the decision of Hon’ble Supreme Court in the case of Malabar Industrial Company limited vs CIT (surpa) held as under:- 26. The CIT has made reference to Explanation 2 to sec. 263 of the Act introduced by the Finance Act, 2015. Explanation-2 so introduced sets out cases in which order of the AO can be deemed as erroneous. The said explanation does not dispense with compliance or existence of (i) there being no enquiry made by the Ld. AO; (ii) the AO’s conclusion being contrary to CBDT Circular or (iii) against decision of jurisdictional High Court or Supreme Court. In the present case the CIT in the impugned order has not brought facts to show the existence of absence of enquiry especially when the AO has already concluded that the purchases by the assesee from four parties mentioned by the DIT (Investigation) Mumbai in its report were bogus. The decision of the Mumbai and Delhi ITAT in the case of M/s. Shri Narayan Tatu Rane (supra) and M/s. Amira Pure Foods (P) Ltd. (supra) cited by the Ld. AR clearly supports the view that Explanation-2 to sec. 263 of the Act will not be of any assistance to the plea of the revenue unless the facts and circumstances set out there in exists in a given case. 16. In this view of the matter and by respectfully following the case laws discussed hereinabove, we are of the considered view that the conditions prescribed u/s 263 are not fulfilled to invoke revisional jurisdiction by the 31 ITA No.580/Hyd/2024 M/s N.A.M.Expressway Limited Ld.PCIT to revise the assessment order passed by the Ld. AO u/s 143(3) of the I.T.Act, 1961. Therefore, we are of the considered view that the assessment order passed by the Ld. AO is neither erroneous, nor prejudicial to the interest of the revenue. We, therefore, quash the order of the Ld.PCIT u/s 263 of the Act, and allow the appeal of the assessee 18. In view of this matter and considering the facts of the present case, we are of the considered view that the assessment order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of the Revenue. The Ld.PCIT, without appreciating the relevant facts, set aside the assessment order passed by the Assessing Officer. Therefore, we quashed the order passed by the Ld.PCIT and restore the assessment order passed by the Assessing Officer us 143(3) of the Act dated 21.04.2021. 19. In the result, appeal filed by the assessee is allowed. Order pronounced in the Open Court on 28th January, 2025. Sd/- Sd/- (K.NARASIMHA CHARY) JUDICIAL MEMBER (MANJUNATHA G.) ACCOUNTANT MEMBER Hyderabad, Dated 28th January, 2025 L.Rama, SPS 32 ITA No.580/Hyd/2024 M/s N.A.M.Expressway Limited Copy to: S.No Addresses 1 M/s N.A.M.Expressway Limited, B-376, Upper Ground Floor, Nirman Vihar, Delhi 2 Asst.Commissioner of Income Tax, Circle-5(1), Hyderabad 3 The Pr.CIT-4, Hyderabad 4 The DR, ITAT Hyderabad Benches 5 Guard File By Order "