PROCTER AND GAMBLE HEALTH PRIVATE LIMITED ,MUMBAI V. THE PR. COMMISSIONER OF INCOME TAX -8 , MUMBAI

ITA 2326/MUM/2025

AI Insights

The case involves Procter and Gamble Health Private Limited, which appealed against the order of the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income-tax Act, 1961. The PCIT had revised the assessment for the assessment year 2018-19, claiming it was erroneous and prejudicial to the interests of the revenue. The Tribunal examined whether the PCIT was justified in invoking section 263, considering the detailed scrutiny and responses during the original assessment proceedings. The Tribunal concluded that the PCIT's order was not sustainable as the Assessing Officer had conducted adequate inquiries and the issues raised were addressed satisfactorily.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 717644 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2018-2019
• Appeal Filed On: 02-04-2025
• Other Referred Cases: PCIT vs. Cartier Leafin (P) Ltd., CIT vs. Nirav Modi, PCIT vs. Clix Finance India (P) Ltd., Malabar Industrial Co. Ltd. vs. CIT, TRF Ltd vs CIT, Gabriel India Ltd. vs CIT, CIT vs. Sunbeam Auto Ltd., CIT vs. Anil Kumar Sharma, CIT vs. Paville Projects (P.) Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A DHYANI; DR
• Assessee Lawyers: AARTI VISSANJI; AJAY BHANDARI
• Keywords: Set aside; Revised return; Revenue expenditure; Question of law; Bad and doubtful debts; Sale consideration of property below Jantri Value; Gift; Capital expenditure; TDS; Assessment record; Revision of order
• Section: 143(3); 142(1); 263; 68; 37; 43B; 50C; 37(1); 40(a)(ia)

Judgement Text

" | आयकर अपीलीय अिधकरण ा यपीठ, मुंबई | IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI BEFORE SHRI NARENDRA KUMAR BILLAIYA, HON’BLE ACCOUNTANT MEMBER & SHRI SANDEEP SINGH KARHAIL, HON’BLE JUDICIAL MEMBER I.T.A. No. 2326/Mum/2025 Assessment Year: 2018-19 Procter and Gamble Health Private Limited P&G Plaza, Cardinal Gracias Road Chakala, Andheri (E) Mumbai - 400099 [PAN: AAACE2616F] Vs The Pr. Commissioner of Income Tax-8, Mumbai अपीला थ\u0016/ (Appellant) \u0017\u0018 यथ\u0016/ (Respondent) Assessee by : Ms. Aarti Vissanji & Shri Ajay Bhandari Revenue by : Shri R A Dhyani, CIT D/R सुनवाई की तारीख/Date of Hearing : 12/08/2025 घोषणा की तारीख /Date of Pronouncement : 14/08/2025 आदेश/O R D E R PER NARENDRA KUMAR BILLAIYA, AM: This appeal by the assessee is preferred against the order of the ld. Principal Commissioner of Income-tax – 8, Mumbai [hereinafter the ‘ld. PCIT’] dated 21/02/2025 pertaining to AY 2018-19, framed u/s 263 of the Act. 2. The sum and substance of the grievance of the assessee is that the ld. PCIT erred in assuming jurisdiction conferred upon him by the provisions of Section 263 of the Act and further erred in holding that the assessment order dated 11/04/2022 framed u/s 143(3) r.w.s. 144B of the Act is erroneous inasmuch as it is prejudicial to the interest of the revenue. 3. Representatives of both the sides were heard at length. Case records carefully perused and the relevant documentary evidence Printed from counselvise.com I.T.A. No. 2326/Mum/2025 2 brought on record duly considered in the light of Rule 18(6) of the ITAT Rules, 1963. 4. Briefly stated the facts of the case are that the assessee filed its return of income on 10/10/2018 declaring total income at Rs. 1,74,81,92,230/-. The return was selected for scrutiny as per selection criteria under CASS on the ground as under:- “1. Verification of Duty Drawback received as shown in the Export Import Data. 2. Claim of Large Value Refund. 3. Sale consideration of the property in ITR is less than sale consideration of property reported in the documents present with the department Property sold at a consideration (shown in ITR) less than the value as per Stamp authority) (u/s 50C or any other relevant section). 4. Mismatch in expenditure of personal nature reported in Audit Report and ITR. v5. Lower amount disallowed u/s 40(a)(ia) in ITR(Part A-OI) in comparison to audit report. 6. Large \"any other amount allowable as deduction\" claimed in Schedule BP of return. 7. Non-compliance to Income Computation & Disclosure Standards. 8. Taxable income shown in revised return is less than the taxable income shown in the Original return and large refund has been claimed (Business ITR). 9. Sale consideration of property in ITR is less than sale consideration reported in Form 26QB.” 5. Statutory notices were accordingly issued and served upon the assessee and during the course of scrutiny assessment proceedings, the AO raised several queries which were duly responded by the assessee and the returned income was assessed at Rs. 1,79,46,37,344/-. 5.1. Assuming jurisdiction conferred upon him by the provisions of Section 263 of the Act, the ld. PCIT issued notice dated 12/11/2024, which reads as under:- “M/s/Mr/Ms Subject: Notice for Hearing in respect of Revision proceedings u/s 263 of the THE INCOME TAX ACT, 1961 - Assessment Year 2018-19. In this regard, a hearing in the matter is fixed on 21/11/2024 at 03:30 PM. You are requested to attend in person or through an authorized representative to submit your representation, if any alongwith supporting documents/information in support of the issues involved (as mentioned below). If you wish that the Revision proceeding be concluded on the basis of your written submissions/representations filed in this office, Printed from counselvise.com I.T.A. No. 2326/Mum/2025 3 on or before the said due date, then your personal attendance is not required. You also have the option to file your submission from the e-filing portal using the link: incometaxindiaafiling.gov.in Sub.: Show-cause Notice in respect of Revision proceedings u/s 263 of the Income-tax Act, 1961-Assessment Year 2018-19 In the case of M/s Procter & Gamble Health Limited (PAN : AAACE2616F)-reg. Kindly refer to the above. In this case, the return of income was filed by the assessee on 10.10.2018, declaring total income at Rs. 174,81,92,230/-. Assessment u/s 143(3) read with section 144B of the Income-tax Act was made by the Faceless Assessing Officer on 11.04.2022 assessing total income at Rs.179,46,37,344/- after making addition of Rs.4,64,45,114/- on account of cash credit u/s 68 of the I.T. Act and u/s 56(2)(x) of the I.T. Act respectively. 2. On perusal of the assessment records, it is observed that the assessee had debited Rs.4,22,40,716/- and credited Rs.1.46,18,667/- as other comprehensive while computing taxable income. However, the assesses had not added back debited portion of other comprehensive income of Rs.4,22,40,716/- while computing taxable income. This has led to an underassessment of income of Rs.4,22,40,716/-, resulting in a short levy of tax as well as interest. 2.1. On perusal of the assessment records, it is observed from the computation sheet filed by the assessee that an amount of Rs.6,87.44,074/- was disallowed u/s 40(a)(ia) of the I.T. Act being 30 percent of expenditure of Rs.22,91,46,913/- claimed during the year due to the reason that no tax was deducted at source on such expenditure. In form 3CD under clause 21(b)(ii)(A), these expenses such as payment to contractors, legal and profession fee, sales promotion etc. were provided during the year on estimated basis as the bills were not received before the end of the previous year and these expenses are only a provision made during the year and the exact liability would be known only when the bills are received and booked. Being provision made in the books, they are not an allowable expense as per the provisions of section 37 of the Income-tax Act. Accordingly, entire expenditure is liable to be disallowed as they are in the nature of provisions. While completing the assessment u/s 143(3) read with section 144B of the Income-tax Act dated 11.04.2022, the Assessing Officer did not verify the same, which led to underassessment of income amounting to Rs. 16,04,02,839/-, resulting in a short levy of tax as well as interest accordingly. 2.2. Further, perusal of the assessment records, it is observed from the profit and loss account that the assessee had claimed sales promotion expenses of Rs.98,99,24,269/-. However, the details of sales promotion expenses were neither called during the assessment proceeding by Assessing Office nor submitted by the assessee. In the sales promotion, the element of freebees cannot be ignored as it is inadmissible under section 37(1) of the I.T. Act. Hence, due to non verification of details in respect of sales promotion called for by Assessing Officer while passing the order u/s 143(3) read with section 144B of the Income-tax Act dated 11.04.2022, the quantification of freebees was not possible, which lead to underassessment of income. 3. Therefore, it appears that the assessment order passed under section 143(3) read with section 144B of the Income-tax Act, 1961 on 11.04.2022, is erroneous in so far as it is prejudicial to the interest of revenue, within the meaning of Section 263 of the Income-tax Act. In view of this, you are required to show cause as to why the above Printed from counselvise.com I.T.A. No. 2326/Mum/2025 4 said assessment order should not be revised under section 263 of the Income- tax Act, 1961. 4. In this connection, you are hereby accorded an opportunity to file submission/explanation on or 21.11.2024 before through e-fillng Portal, alongwith all supporting documents and evidences or avail personal hearing, you are requested to attend the hearing on 21.11.2024 at 03:30 PM at Room No. 611, 6th floor, Aayakar Bhavan, M.K. Road, Mumbai-400020 either in person or through an authorized representative. In case of non-compliance on the stipulated date and time, it will be presumed that you have no objection to the proposed revision of the assessment order passed by the Assessing Officer under section 143(3) read with section 144B of the Income-tax Act, 1961 on 11.04.2022. RAJIV KUMAR SINGH PCIT, Mumbai -8 “ 6. The ld. PCIT alleged that on the aforementioned issues, no enquiry was made by the AO nor any details have been furnished by the assessee, therefore, the impugned assessment order is erroneous insofar as it is prejudicial to the interest of the revenue. 7. Facts on record show that the AO issued notice u/s 142(1) of the Act dated 11/11/2020 and raised the queries as under:- 1. “Detailed note on Duty Drawback received as shown in the Export Import Data along with supporting documentary evidence. 2. Audited Balance Sheet and Profit & Loss Account statements (Along with all notes to accounts) for AY 2018-19 3. Tax Audit Report for AY 2018-19 4. With respect to Income for the year under consideration and the claim of refund during the year, kindly submit the below specified details: i. Furnish computation of income for the relevant AY. ii. Provide a brief note about the nature of business activity carried out by you during the year under consideration. iii. Furnish the details of deductions, exemptions and rebate claimed during the year along with suporting documents. iv. Furnish the statement of set off/adjustment of current year/carried forwareded loss against any income of the year under consideration. v. Provide the comparision of income reported, deductions/exemptions/rebate claimed, current year/carried forwarded loss set-off/adjusted, advance tax paid, self assessment tax paid. TDS deducted, total tax paid, refund claimed for the current year under consideration and previous two years. vi. Provide the comparision of sales/tu mover. gross profit, net profit, GP ratio. NP ratio for the year under consideration and previous two years. vii. Provide the justification of large refund claimed in ITR vis-a-vis advance tax paid for the assessment year under consideration Printed from counselvise.com I.T.A. No. 2326/Mum/2025 5 5. It is observed that you have shown less Sale consideration of the property in ITR in than sale consideration of property reported in SFT. In this regard you are requested to explain the difference along with supporting documentary evidence. It must include copy of Sale agreement and receipt of stamp duty paid, mode of transaction and evidence thereof. 6. It is also seen from the records that you have sold a Property at a consideration (shown in ITR) less than the value as per Stamp authority) (u/s 50C or any other relevant section). Please furnish the detailed explanation in this regard. 7. Explanatory note on Mismatch in expenditure of personal nature reported in Audit Report and ITR 8. Explanatory note on Lower amount disallowed u/s 40(a)(ia) in ITR(Part A- OI) in comparison to audit report 9. Explanatory note on Item Any other amount allowable as deduction in Schedule BP of ITR along with supporting documentary evidence. 10. Explanatory note on ICDS Compliance and Adjustment along with supporting documentary evidence. 11. Explanatory note on Taxable income shown in revised return is less than the taxable income shown in the Original return and large refund has been claimed (Business ITR) along with supporting documentary evidence. 12. Explanatory note on Sale consideration of property in ITR is less than sale consideration reported in Form 26QB along with supporting documentary evidence. Please note all explanation must be supported by documentary evidences and need to attach with submission/compliance Yours faithfully. Additional / Joint / Deputy / Assistant Commissioner of Income Tax/ Income-tax Officer. National e-Assessment Centre. Delhi” 6.1. The assessee filed detailed reply which reads as under:- “M. A. PARIKH & CO. CHARTERED ACCOUNTANTS 22nd September, 2021 The Addl./ Joint / Dy. / Asst Commissioner of Income Tax, National e-Assessment Centre, Delhi. Sir, Re: M/s. Procter and Gamble Health Limited (\"the assessee company\") PAN: AAACE 2616 F Assessment Year: 2018-19 Assessment Proceedings 1. Further to and in continuation of our earlier submission dated 07.10.2019,26.11.2020, 18.01.2021 and 05.03.2021 in connection with the assessment of total income of the assessee company for the year ended 31st March, 2018 relevant to the Assessment Year 2018-19, we, under instructions from the assessee company, submit as under: 2. Claim of \"Other amounts allowable as deduction* in Schedule-BP in ITR Printed from counselvise.com I.T.A. No. 2326/Mum/2025 6 The breakup of other amounts claimed as deduction of Rs. 8,10,62,410/- is as under: - (i) Reversal of Provision for VAT on Royalty - Rs. 7,11,797/- (ii) Bad debts written off of against Provision for doubtful debts - Rs- 2,65,84,253/- (iii) Provision for Doubtful debts Written Back to Profit & Loss A/c - Rs- 1,15,25,643/- (iv) (iv) OCI Adjustment pertaining to Re-measurements of defined benefit obligation - Rs. 4,22,40,716/- 3 Reversal of Provision created for VAT on Royalty of Rs. 7,11,797: - 3.1 The assessee company had made Provision on account of disputed VAT on Royalty Payment over the years which aggregated to Rs. 5,88,20,797/- as at 31.03.2017. The assessee company had disallowed said provisions in computing its total income in the respective years in which the same were made. We request to kindly refer the copies of computation of total income from Assessment Year 2015-16 to Assessment Year 2017-18 attached marked as \"Annexure A, B & C \" 3.2 During the year under reference, from the earlier disallowed provision, amount of Rs. 7,11,797/- is reversed by the assessee company. 3.3 In view of the above, reversal of provision of Rs. 7,11,797/- which was disallowed in earlier year is reduced in computing the income for the year under reference. 4. Re: Bad debts w/off against provision of doubtful debts which was disallowed in earlier years in case of the assessee company Rs. 2,65,84,253/- 4.1 The assessee company had made Provision for doubtful debts, based on the accounting standards followed by them over a period of years which aggregated to Rs. 8,18,44,984/- as at 31.03.2017. The assessee company had disallowed the said provisions in computing its total income in the respective years in which the same were made. We give here below the movement of Provision of Doubtful Debts Particulars Amount Remarks Opening Provision as on 1st April 2017 8,18,44,984 Disallowed in earlier years Less: Bad debts w/off against the provision (2,65,84,253) Allowance claimed in Financial Year 2017-2018 Less: Provision written back during the year (1,15,25,643) Allowance claimed in Financial Year 2017-2018 Closing Provision as on 31st March 2018 4,37,35,088 4.2 We have already enclosed copies of Computations of Total Income from AY 2015-16 to AY 2017-18 marked as \"Annexure A, B and C\" respectively in Point No. 3.1 above. On perusal of the same, your goodself shall observe that the assessee company has made disallowance of the Provisions created during the respective assessment years. 4.3 During the year under reference the assessee company has utilized the Provision by writing off the Bad Debts amounting to Rs. 2,65,84,253/- against the said provision. The accounting entry in respect of the same is as under. Printed from counselvise.com I.T.A. No. 2326/Mum/2025 7 A) In the year in which provisions were made Provision for Doubtful debts (Expense A/c) -------- Dr To Provision for doubtful debts (BS) B) The year in which the Bad debts are w/off i.e, impugned Assessment Year Provision for doubtful debts (BS)Dr To Respective Debtors A/c 4.4 . The sales made to the respective debtors was accounted as income and offered to the tax in the year in which invoices were raised to the respective debtors. Hence, the same should be allowed as Bad debts u/s 36(l)(vii) r.w.s 36(2) of the Act as the same are written off during the year under reference 4.5 We also draw your attention to judicial pronouncement of Judicial Pronouncement in respect of TRF Ltd Vs CIT (2010) 190 taxmann.com 391 (SC) and CBDT circular no. 12/2016 dated 30th May 2016 wherein CBDT has instructed that bad debts should be allowed even if debt not established to be irrecoverable. 4.6 In view of the above, bad debts w/off of Rs. 2,65,84,253/- is claimed as admissible deduction in computing the income for the year under reference. 5. Reversal of Excess Provision for doubtful debts w/back Rs. 1,15,25,643/- 5.1 During the year under reference the assessee company has reversed the excess Provision for doubtful debts amounting to Rs. 1,15,25,643/-. We refer to the movement shown in para 4.1 hereinabove. 5.2 As the said amounts were disallowed in the respective years in which the Provision for Doubtful Debts was created, the same is reduced in computing the income for the year under reference. We request to kindly refer the copy of computation of total income from Assessment Year 2015-16 to Assessment Year 2017-18 already attached vide Point no. 3.1 as sample reference. 5.3 Therefore, the amount of Rs. 1,15,25,643/- being excess provision w/back during the year is not liable to tax and accordingly is reduced in computing the total income for the year under reference. 6. Other Comprehensive Income (PCI) Adlustment pertaining to Re-measurements of defined benefit liability / (assets) of Rs, 4,22,40,716/- 6.1 The provision for post-retirement benefit payable to employees is disallowed u/s 43B of the Act including the amount of Rs. 4,22,40,721/- which is reclassed as other comprehensive income in statement of Profit or Loss as per Ind AS. Hence, it will be observed that the said amount is not reduced while arriving the Profit Before Tax. However, the entire amount reflected in 3CD was disallowed, though the amount of Rs. 4,22,40,712/- is not claimed as expense while arriving Profit Before Tax, which will result into double disallowance by Rs. 4,22,40,721/-. Hence, the same is reduced in computing the income for the year ended 31st March 2018. 6.2 The above adjustment is explained hereunder by way of an example Printed from counselvise.com I.T.A. No. 2326/Mum/2025 8 Sr No. Particulars Amount (In Rs.) 1 Net Profit before Tax - say Rs. 100/- (before considering impact of OCI of Rs. 10/- on account of Re- measurement of defined benefit plans) 100 Add: Disallowance of Provision of Gratuity as per 3CD u/s 43B (including Disallowance of OCI adjustment of Rs. 10/-) 10 Less: Claim of other deduction OCI Impact on re- measurement of defined benefit plans (10) 2 Net Profit before Tax 100 6.3 Hence, it proves beyond doubt that Assessee Company have correctly adjusted the net profit computed as per IND AS to avoid double disallowance. 7. If you require any further details or information kindly let us know so that the same can be furnished. Further, if your goodself are in not agreement of any matter or are proposing to take any adverse view we request you to provide opportunity for further submissions in the matter and also grant us \"Video Conference\" in the matter. 8. We trust the above meets your requirements. Yours faithfully For M.A. Parikh and Co. Chartered Accountants” 7. It can be seen from the above that specific query was raised by the AO to which specific reply was filed by the assessee. The profit and loss account for the year ended 31/03/2018 is as under:- “Merc Limited Statement of Profit and Loss for the year ended 31st March 2011 (All amounts are in Rupees. except share data and as stated) Printed from counselvise.com I.T.A. No. 2326/Mum/2025 9 7.1. And the income has been computed as under:- ***This space has been left blank intentionally. P.T.O.*** Printed from counselvise.com I.T.A. No. 2326/Mum/2025 10 Printed from counselvise.com I.T.A. No. 2326/Mum/2025 11 7.2. A perusal of the profit and loss account shows that the assessee did not claim expenditure and in the computation of income, the assessee has first claimed the amount as deduction and then added back the same. This is in respect of the first issue raised by the ld. PCIT. In our view, specific query was raised and specific reply was given. For the second issue, the following has been mentioned in the audit report:- ***This space has been left blank intentionally. P.T.O.*** Printed from counselvise.com I.T.A. No. 2326/Mum/2025 12 8. This was one of the reasons for scrutiny selection of the return of income as evident from point no. 5 in the reasons given for scrutiny selection mentioned elsewhere. A detailed explanation was filed by the assessee during the course of the scrutiny assessment proceedings itself which has been examined by the AO as evident from para 5 of the assessment order wherein it has been mentioned as under:- “5. Lower amount disallowed u/s 40(a)(ia) In ITR(Part A-OI) in comparison to audit report. The assessee was served Showcause notice regarding the said CASS reason. The excerpt of the Showcause is reproduced as such :- Lesser amount shown as disallowable u/s 40(a)(1) & 40(a)(ai):- You have reported lesser amount disallowable under section 40(a)(ia) as per Part A-OI of ITR in comparison to the amount disallowable under section 40(a)(ia) as reported by the tax auditor in Form 3CD. Since this is a time barring case, Hence you are requested to submit your reply by or before 9th Feb, 2021 positively. In response to this, the assessee submitted the reply. The excerpt of the reply is :- Clause 21(b)(ii)(A) Enclosure-9A Printed from counselvise.com I.T.A. No. 2326/Mum/2025 13 Statement showing details of amounts inadmissible u/s 40(a)(ia) of the Act On perusal of the records, it is found that the amount disallowed u/s 40(a)(ia) as per ITR has been justified in the reply submitted by the assessee in reconciliation as per form 3CD i.e Rs. 6,87,44,074/-being 30% of Rs. 22,91,46,913/-. Therefore, the reply is satisfactory and acceptable.” Printed from counselvise.com I.T.A. No. 2326/Mum/2025 14 9. It can be seen from the observation of the AO that after examining the details, the AO was satisfied with the correctness and accepted the same. 10. On the third issue, a notice was issued u/s 31/01/2021 and the queries raised read as under:- “A. Please provide the following information with reference to Profit & Loss account, with supporting documents; 1. Details of sale promotion expenses 2. Details of Bad debts written off 3. Details of other and misc. expenses 4. Details of expenses incurred on Conferences. Distribution of free sample stock. 5. Details of expenses incurred on agents commission. B. It is also observed that you have debited an amount of Rs 1.06,95477/- in you P & L account on account of Corporate Social Responsibility. This is not a business expense hence non deductible u/s 37. The Corporate Social Responsibility expenses may be deducted after tax not before tax. You are hereby show cause as why CSR expenses shall not disallowed and added back to your total income? Your reply must reach to this office in given time. Please note since the case is being time barred by limitation, so no more opportunity may be granted. If you fail to reply in time, then it may be assumed that you have nothing to say in this matter and assessment order may be passed on the basis of material available on record. Yours faithfully, Additional / Joint / Deputy / Assistant Commissioner of Income Tax/ Income-tax Officer, National e-Assessment Centre, Delhi” 11. And the detailed reply was filed by the assessee along with the statement showing ledger-wise details of sales promotion expenses which run through pages 156 to 270 of the paper book. 12. The allegation of the ld. PCIT is that since the same has been prohibited by The Indian Medical Council Act, 1956 as amended by the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, the assessee cannot claim such expenditure u/s 37(1) of the Act. The amended regulation prohibits gifts, travel facilities, Printed from counselvise.com I.T.A. No. 2326/Mum/2025 15 hospitalities, cash or monetary gains. However, clause (g) of the notification reads as under:- “(g) Affiliation: A medical practitioner may work for pharmaceutical and allied healthcare industries in advisory capacities, as consultants, as researchers, as treating doctors or in any other professional capacity. In doing so, a medical practitioner shall always : (i) Ensure that his professional integrity and freedom are maintained; (ii) Ensure that patients interest are not compromised in any way; (iii) Ensure that such affiliations arc within the law; (iv) Ensure that such affiliations/employments are fully transparent and disclosed.” 13. A careful perusal of the details furnished by the assessee show that nothing has been paid to the doctors in contravention to the prohibitions mentioned in the notification, therefore, it cannot be said that the expenditure has been claimed in respect of items prohibited by the law. 14. Considering the facts of the case in totality in the light of aforementioned discussion of the facts, it is clear that specific queries were raised by the AO to which specific replies were furnished by the assessee and it cannot be said that no enquiry was made. The Hon’ble High Court of Bombay in the case of PCIT vs. Cartier Leafin (P) Ltd. 112 taxmann.com 63, had the occasion to consider a similar grievance and held as under:- “7. We find that the finding of fact order of the Tribunal that the proceedings under section 263 of the Act, on the face of it, have been initiated without examination of records before the Assessing Officer is not shown to be perverse. It is clear that the show cause notice proceeds on the basis that the books of accounts, transaction accounts of share trading carried out by the assessee vis-a-vis D-mat accounts have not been examined by the Assessing Officer during the course of assessment proceedings. However, we note that in the assessment order dated 28 March 2014 itself in paragraph-5.2, the Assessing Officer has recorded that he examined D-mat account in order to verify the share trading activities claimed by the assessee. Moreover the before passing the assessment order, sale, purchase and closing stocks were also examined by the Assessing Officer. Thus, the basis to invoke section 263 of the Act factually did not exist as there was due enquiry by the Assessing Officer during the assessment proceedings leading to the assessment order dated 28 March 2014. Thus, it is amply clear that the Assessing Officer has applied his mind while accepting the claim of the Respondent of operating loss of Rs.8.79 crore making the proceedings under section 263 of the Act bad in law. In any event, the view taken on fact by the Assessing Officer is a possible view and the same is not shown to be bad.” Printed from counselvise.com I.T.A. No. 2326/Mum/2025 16 15. Similar view was taken by the Hon’ble High Court of Bombay in the case of CIT vs. Nirav Modi 390 ITR 292. The relevant findings read as under:- “12. In the present facts, the Assessing Officer was satisfied, consequent to making an enquiry and examining the evidence produced by the Assessing Officer, establishing the identity and creditworthiness of the donor as also the genuineness of the gift. The CIT in his order of Revision, does not indicate any doubts in respect of the genuineness of the evidence produced by the Assessee. The satisfaction of the Assessing Officer on the basis of the documents produced is not shown to be erroneous in the absence of making a further enquiry. It is made clear that our above observations should not be inferred to mean that it is open to the Assessing Officer to enquire into the source of source for the purpose of the present facts. This is a case where a view has been taken by the Assessing Officer on enquiry. Even if this view, in the opinion of the CIT is not correct, it would not permit him to exercise power under Section 263 of the Act. In fact, the Apex Court in Amitabh Bachchan (supra) has observed that there can be no doubt that where the view taken by the Assessing Officer is a possible view, interference under Section 263 of the Act, is not permissible.” 16. The Hon’ble High Court of Delhi in the case of PCIT vs. Clix Finance India (P) Ltd. [2025] 473 ITR 650 (Delhi) interalia held 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 twopronged 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. Printed from counselvise.com I.T.A. No. 2326/Mum/2025 17 22. Reliance can be placed on the decision of this Court in the case of CIT v. Sunbeam Auto Ltd.[2010] 189 Taxman 436/[2011] 332 ITR 167 (Delhi)/[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:- \"17. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between \"lack of inquiry\" and \"inadequate inquiry\". If there was any inquiry, even 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] 114 CTR 81/203 ITR 108/CIT v. Gabriel India Ltd. [1993] 71 Taxman 585/203 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] 194 Taxman 504/[2011] 335 ITR 83 (Delhi)/[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. [2009] 227 CTR 133/[2011] 332 ITR 167/[2010] 189 Taxman 436 (Delhi) (page 180) : \"that would not by itself give occasion to the Commissioner to pass orders Printed from counselvise.com I.T.A. No. 2326/Mum/2025 18 under section 263 of the Act, merely because he has a different opinion in the matter.\" No substantial question of law arises for our consideration.\" 24. In Ashish Rajpal as well, this Court was of the view that the fact that a query was raised during the course of scrutiny which was satisfactorily answered by the assessee but did not get reflected in the assessment order, would not by itself lead to a conclusion that there was no enquiry with respect to transactions carried out by the assessee. 25. Further, the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd., enunciates the meaning and intent of the phrase \"prejudicial to the interests of the Revenue\", in the following words:- \"8. The phrase \"prejudicial to the interests of 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 (Calcutta), the High Court of Karnataka in CIT v. T. Narayana Pai[1975] 98 ITR 422 (Karnataka), the High Court of Bombay in CIT v. Gabriel India Ltd. [1993] 71 Taxman 585/203 ITR 108 (Bom.)/[1993] 203 ITR 108 (Bom) and the High Court of Gujarat in CIT v. Minalben S. Parikh[1995] 127 CTR 333/215 ITR 81/79 Taxman 184 (Gujarat) 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] 62 CTR 152/163 ITR 129/30 Taxman 528 (Madras) 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 prejudicial to the interests of the Revenue. (See Rampyari Devi Saraogi v. CIT[1968] 67 ITR 84 (SC) and in Tara Devi Aggarwal v. CIT (1973) 3 SCC 482 : 1973 SCC (Tax) 318 : (1973) 88 ITR 323.\" Printed from counselvise.com I.T.A. No. 2326/Mum/2025 19 [Emphasis supplied] 26. Recently, the Hon'ble Supreme Court in the case of CIT v. Paville Projects (P.) Ltd. [2023] 149 taxmann.com 115/293 Taxman 38/453 ITR 447 (SC)/[2023] SCC OnLine SC 371, while relying upon Malabar Industrial Co. Ltd., has discussed the sanctity of twofold conditions for the purpose of invoking jurisdiction under Section 263 of the Act. The relevant paragraph of the said decision reads as under:- \"27. 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 263 of the Income Tax Act, it is observed and held that in order to exercise the jurisdiction under Section 263(1) of the Income 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 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 Printed from counselvise.com I.T.A. No. 2326/Mum/2025 20 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.” 17. Considering the facts of the case in totality, in light of the judicial decisions discussed hereinabove, we set aside the order of the ld. PCIT dated 21/02/2025 and restore that of the AO dated 11/04/2022 framed u/s 143(3) r.w.s 144B of the Act. 18. In the result, appeal of the assessee is allowed. Order pronounced in the Court on 14th August, 2025 at Mumbai. Sd/- Sd/- (SANDEEP SINGH KARHAIL) (NARENDRA KUMAR BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated 14/08/2025 *SC SrPs *SC SrPs *SC SrPs *SC SrPs आदेश की \u0015ितिलिप अ\u001aेिषत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. \u0015 थ / The Respondent 3. संबंिधत आयकर आयु\" / Concerned Pr. CIT 4. आयकर आयु\" ) अपील ( / The CIT(A)- 5. िवभागीय \u0015ितिनिध ,आयकर अपीलीय अिधकरण, मुंबई /DR,ITAT, Mumbai, 6. गाड& फाई/ Guard file. आदेशानुसार/ BY ORDER TRUE COPY Assistant Registrar आयकर अपीलीय अिधकरण ITAT, Mumbai Printed from counselvise.com "