Bombay High Court
Mirum Digital Pvt Ltd vs Principal Commissioner Of Income Tax 6 … on 19 June, 2026
Author: G. S. Kulkarni
Bench: G. S. Kulkarni
50.DOC
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO. 286 OF 2024
Mirum Digital Pvt. Ltd. ...Appellant
Versus
Principal Commissioner of Income-Tax-6, Mumbai ...Respondent
_______
Adv. Nishant Thakkar a/w Hiten Thakkar, Jasmin Amalsadvala i/b. Lumiere
Law Partners for the Appellant.
Mr. Akhileshwar Sharma for the Respondent.
_______
CORAM: G. S. KULKARNI &
AARTI SATHE, JJ.
DATE: 19 JUNE 2026
ORAL JUDGEMENT (PER AARTI SATHE, J.):-
1. This Appeal has been filed by the Appellant-Assessee under Section
260A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) challenging
the order dated 2nd January 2023 (hereinafter referred to as ‘the impugned order’)
passed by the Income Tax Appellate Tribunal (for short ‘ITAT’) dismissing the
Appellant-Assessee’s Appeal, which was filed against the order of the Principal
Commissioner of Income Tax (Appeal)-6 (PCIT), thereby holding that the order
passed by the PCIT under Section 263 of the Act was sustainable. The assessment
year (A.Y.) in question is 2017-18.
2. By the present Appeal, the Appellant-Assessee has raised the following
questions of law :-
a) Whether in the facts and circumstances of the case and in law, the
Tribunal was justified in upholding the order passed by the PrincipalPage 1 of 27
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Commissioner of Income-tax under section 263 of the Act revising the
assessment order for the year under consideration?
b) Whether in the facts and circumstances of the case and in law, the
Tribunal was justified in holding that the issue of revenue reconciliation and
reimbursement of expenses was not examined by the Assessing Officer at all
during the course of assessment proceeding?
c) Whether in the facts and circumstances of the case and in law, the Tribunal
was justified in holding that the order passed under section 263 of the Act is
sustainable because the assessee did not turn up for the hearing and the
Principal Commissioner of Income-tax had to rely on the assessment records?
d) Whether in the facts and circumstances of the case and in law, the order
passed by the Tribunal is arbitrary, perverse and bad in law?
3. Briefly the facts are as follows: –
i. The Appellant-Assessee is engaged in the business of digital marketing,
social media management, media buy, creative services Sales Force Software Gold
Consulting partner. The business practice of the Appellant-Assessee as stated is to
buy media space online from LinkedIn, Google, Times Internet and other online
media channels on behalf of its clients, which are used by the clients to advertise and
promote their goods/services. The advertisement costs payable to the vendors,
namely, LinkedIn, Twitter, Google etc. by the Appellant-Assessee for buying the
media space on behalf of its clients is recovered by the Appellant-Assessee from its
clients. Further, the Appellant-Assessee charges a fixed fee of 4% to 7% (called as
campaign management fee) as part of the actual revenue of the Appellant-Assessee.
As per the Appellant-Assessee’s business models, it raises a consolidated invoice on
its customer which includes the entire media cost from LinkedIn, Twitter, Google,
etc., which pertains to the campaign management fee, which in substance is the gross
revenue/turnover of the Appellant-Assessee. The Appellant-Assessee, therefore, in
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the profit and loss account for the year under consideration, recognized revenue
without including the reimbursement of expenses received from the clients on
account of media cost. The said reimbursement of expenses on account of media
cost is routed from the balance sheet, and hence, reimbursement is neither shown as
income for the year nor the same is claimed as an expenditure for computing the net
profit. It is the Appellant-Assessee’s contention that, therefore, the accounting
method followed by the Appellant-Assessee is revenue neutral and does not have
any impact on net profit, because in the event the reimbursement of expenses is
shown as revenue, the corresponding payment of expenses will also have to be
shown on the expense side and accordingly, the same would not have any impact on
the net profit.
ii. The Appellant-Assessee filed Income Tax Return (ITR) for the year
under consideration (i.e., A.Y. 2017-18), declaring a total income of Rs.
3,29,30,260/-, and thereafter the ITR was selected for scrutiny assessment under
Section 143(2) of the Act through Computer Assisted Scrutiny Selection (CASS).
iii. On 21st October 2019, Assessing Officer (AO) issued a notice to the
Appellant-Assessee under Section 142(1) of the Act, inter alia, requiring the
Appellant-Assessee to submit details along with supporting documents in respect of
the ITR for the A.Y. under consideration, and also categorically requiring the
Appellant-Assessee to submit reconciliation of
26AS/CIB/AIR/OLTAS/ServiceTax/STT/Sales-tax return with audited books of
account and the ITR, and reconciliation of income as per ITR and 26AS statement.
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iv. On 29th November 2019, in response to the show-cause notice dated 21 st
October 2019, the Appellant-Assessee submitted to the AO the reconciliation which
was sought by the aforesaid notice. The Appellant-Assessee also pointed out that
there was a difference of Rs. 46,134 in the income as per 26AS statement and the
income as per books of account/ITR, which could be added to the total income.
v. Thereafter, on 7th December 2019, the AO issued show-cause notice to
the Appellant-Assessee to show cause as to why an addition of Rs. 19,07,83,213/-
should not be made to the total income of the Appellant-Assesse being the
difference between turnover as per Form 3CD and P&L, and the revenue
recognized in the profit and loss account vis-a-vis revenue return in the service tax
return.
vi. In response to the aforesaid show-cause notice, the Appellant-Assessee by
letter dated 14th December 2019, submitted the reconciliation between the income
as per Form 26AS and as per ITR. The Appellant-Assessee also submitted the
reconciliation of the income recorded in the books account and the income to be
reflected as per Accounting Standard-9 and pointed out that reimbursement of
expenses of Rs. 17,26,89,469/- which was billed to the client was not included in
the turnover, since the same was not in the nature of income.
vii. Further, a letter dated 17th December 2019 was submitted by the
Appellant-Assessee to the AO, wherein the Appellant Assessee had provided the
party-wise details of reimbursement of expenses which were not included in the
turnover, and also gave the details of the tax deducted at source on the amount that
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was deducted by the Appellant-Assessee while reimbursing the media cost to the
media companies.
viii. On 23rd December 2019, the AO passed an order under Section 143(3)
of the Act, making a minor addition to the total income of the Appellant-Assessee
and accepted the explanation with regard to the difference in the revenue reported
in the service tax return/26AS statement vis-à-vis the revenue recognised in the
profit & loss account as per Accounting Standard-9, and did not make any further
addition in that regard. Thereafter, on 24 th February 2022, the PCIT issued a notice
under Section 263 of the Act proposing to revise the assessment order dated 23 rd
December 2019 on the ground that the AO did not conduct proper enquiry during
the course of original assessment on the issue of reimbursement of expenses.
ix. It is the Appellant-Assesse’s contention that the Appellant-Assessee
required additional time to collate the information as was asked in the notice, and
also the consultant of the Appellant-Assessee was occupied in other time barring
assignments, therefore the Appellant-Assessee could not file the submission before
the PCIT within the due date provided in the notice and appear before him. It was
only when the consultant of the Appellant-Assessee appeared before the PCIT to
explain the facts and file the submissions, that it was informed to him that the order
under Section 263 of the Act had already been passed, and it would be sent to the
Appellant-Assessee.
x. In the order dated 27 th March 2022, the PCIT revised the original order
of assessment dated 23rd December 2019 on the ground that the same was passed
without proper enquiry, and that it was also erroneous and detrimental to the
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interests of the revenue and was required to be set aside by invoking the provisions
of Section 263 of the Act. In the aforesaid order, the PCIT categorically held that
the Appellant-Assessee had reduced a sum of Rs. 17,26,89,469/- received from
Facebook, Twitter etc. from its turnover, being reimbursement of expenses, and
that the said aspect had not been verified by the AO in the original assessment
order. He therefore sought to revise the original assessment order and held that the
original assessment order passed under Section 143(3) of the Act dated 23 rd
December 2019 was erroneous insofar as it was prejudicial to the interest of the
revenue on the issues discussed in the order passed under Section 263 of the Act,
and therefore, he partly set aside the order of the AO on the issue of reimbursement
of expenses. The relevant portion of the order passed by the PCIT under Section
263 is reproduced below:-
4.3 Order passed without making inquiries or verification which should
have been madeIn the instant case, assessee has reduced a sum of Rs.17,26,89,469/- received from
Facebook, Twitter, etc from its turnover being reimbursement of expenses. The
sales as reported in its books is Rs. 38,55,79,235/- and sales as per ITR is Rs.
21,28,89,766/-. As per the assessee, the commission received by the assessee from
advertisement and software sales on FB and Twitter are billed to the client and
assessee is being reimbursed.
It is seen from the assessment records that vide show cause notice dated
07/12/2019, the AO had asked the assessee that “As claimed in Form 3CD and
P&L, your total turnover is at Rs. 21,28,89,767/- and as per 26AS your gross
receipt is Rs. 38,29,89,589/- while as per service tax return filed with CBEC in
Form ST-3, you have offered the amount of total services provided to the tune of
Rs. 40,36,72,980/-(Rs. 22,33,07,043/- + Rs. 18,03,65,937/-). You are hereby
show caused as to why the difference of these amounts of Rs. 19,07,83,213/- (Rs.
40,36,72,980/- – Rs. 21,28,89,767/-) should not be disallowed and added back to
your income as per the provisions of the Income Tax Act, 1901.” In response to
the above said show-cause notice the assessee has submitted its reply as under:
Mirum Digital Private Limited (Social Pr. Outsourcing Pvt. Ltd.)
Reconciliation of Turnover as per Profit & Loss AccountPage 6 of 27
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Revenue Sales as per Books Reimbursement of Net Turnover to
Type of Account Expenses* be recognised as
per Accounting
Standard-6Total 38,55,79,235 17,26,89.469 21,28,89,766
Sales as
per
Books
2. The company derives Commission Income from
Advertisement runs and Software sales on Facebook, Twitter
and various Social media websites. The entire costs of
Advertisement and Software are billed to clients. However as
per As-9 since only Commission income can be recognised
as Income the Reimbursement of expenses is reduced from
Turnover.
The AO has simply accepted the explanation of the assessee without verifying the
purpose and nature of expenditure incurred.
The Bangalore Tribunal, in the case of Bovis Lend Lease (I) P Ltd vs ITO, noted
that the following parameters are essential for a payment to be regarded as
reimbursement:
The actual liability to pay should be of the person who reimburses the money
to the original payer.
The liability should be clearly determined. It should not be an approximate or
varying amount.
The liability should have crystallized. In other words, the reason given that
payments that were never required but were made just to avoid a potential
problem may not qualify.
There should be a clear ascertainable relationship between the paying and
reimbursing parties. Therefore, alleged reimbursement by an unconnected
person may not qualify.
The payment should first be made by somebody whose liability it never was
and the repayment should then be made to that person to square off the
account.
Three parties should exist in a case of reimbursement-a payer, a payee and a
reimburser (i.e., the person reimbursing the amount to the payer).
It is seen from the case records that the AO has not verified all these aspects to
ascertain that do the sum received qualifies to be actually reimbursement of
expenses or not. Further, the AO was required to verify the expenses so incurred
for the purpose that whether these includes payments in the nature of FTS or
contract receipts (194C) which attracts obligation to deduct tax at source. Since
these necessary inquiries were not carried out by the Assessing Officer, the
assessment order is rendered erroneous and prejudicial to the interests of thePage 7 of 27
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Revenue. The order, therefore, requires to be revised. Further, considering the
facts of the case, reliance is placed on the following ruling:
In the case of Gee Vee Enterprises v. Additional Commissioner of Income-tax
[1975] 99 ITR 375 (DELHI), upheld by the Supreme Court in Malabar Industrial
Co. Ltd. v. Commissioner of Income-tax [2000] 109 Taxman 66 (SC), it has been
held:
“The Income-tax Officer is not only an adjudicator but also an investigator.
He cannot remain passive in the face of a return which is apparently in order
but calls for further inquiry. It is his duty to ascertain the truth of the facts
stated in the return when the circumstances of the case are such as to provoke
an inquiry. The meaning to be given to the word “erroneous” in section 263
emerges out of this context. It is because it is incumbent on the Income-tax
Officer to further investigate the facts stated in the return when circumstances
would make such an inquiry prudent that the word “erroneous” in section
263 includes the failure to make such an inquiry. The order becomes
erroneous because such an inquiry has not been made and not because there
is anything wrong with the order if all the facts stated therein are assumed to
be correct.”
In this judgment the Delhi High Court referred to earlier decisions of the
Supreme Court in Rampyari Devi Sarogi v. CIT [1968] 67 ITR 84 (SC) and Tara
Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC), wherein it has been held that
where Assessing Officer has accepted a particular contention/issue without any
enquiry or evidence whatsoever, the order is erroneous and prejudicial to the
interest of the Revenue. After reference to these two decisions, the Delhi High
Court observed:-
These two decisions show that it is not necessary for the Commissioner to
make further inquiries before cancelling the assessment order of the Income-
tax Officer. The Commissioner can regard the order as erroneous on the
ground that in the circumstances of the case the Income-tax Officer should
have made further inquiries before accepting the statements made by the
assessee in his return.
In the case of Commissioner of Income-tax-V v. Nagesh Knitwears (P.) Ltd
[2012] 22 taxmann.com 309 (Delhi) the Hon. Delhi High Court distinguished
the action to be taken in the following cases: One where there is total absence of
enquiry or verification in contra distinction to cases where there is inquiry but the
findings are incorrect/erroneous; and where there is failure to make proper or full
verification or inquiry. In the first category of cases, where there is complete lack
of inquiry, the matter is settled by the Hon. Supreme Court Rampyari Devi Sarogi
v. CIT [1968] 67 ITR 84 (SC) and Tara Devi Aggarwal v. CIT [1973] 88 ITR
323 (SC), wherein it has been held that where Assessing Officer has accepted a
particular contention/issue without any enquiry or evidence whatsoever, the order
is erroneous and prejudicial to the interest of the Revenue. In such type of cases it
is not necessary for the Commissioner to make further inquiries before cancelling
the assessment order of the Income-tax Officer as explained in the case of Gee Vee
Enterprises v. Additional Commissioner of Income-tax [1975] 99 ITR 375
(DELHI).However in cases of full inquiry or partial verification or inquiry; “the
CIT has to come to the conclusion and himself decide that the order is erroneous,
by conducting necessary enquiry, if required and necessary, before the order under
Section 263 is passed. In such cases, the order of the Assessing Officer will be
erroneous because the order passed is not sustainable in law and the said findingPage 8 of 27
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must be recorded. CIT cannot remand the matter to the Assessing Officer to
decide whether the findings recorded are erroneous. In cases where there is
inadequate enquiry but not lack of enquiry, again the CIT must give and record a
finding that the order/inquiry made is erroneous. This can happen if an enquiry
and verification is conducted by the CIT and he is able to establish and show the
error or mistake made by the Assessing Officer, making the order unsustainable in
Law. In some cases possibly though rarely, the CIT can also show and establish
that the facts on record or inferences drawn from facts on record per se justified
and mandated further enquiry or investigation but the Assessing Officer had
erroneously not undertaken the same. However, the said finding must be clear,
unambiguous and not debatable. It is evident that the assessee, by not responding
to the notice issued u/s 263 has unwarranted any further enquiry on this issue.
In CIT v Amitabh Bachchan [2016] 384 ITR 200 (SC) the Apex court held
that Section 263 does not require any specific show cause notice detailing
specific grounds on which revision of assessment order is tentatively being
proposed. Commissioner is free to exercise his jurisdiction on all issues,
provided an opportunity of hearing is afforded to assessee to contest facts on
basis of which he had exercised revisional jurisdiction, Even if AO has applied
his mind, CIT may initiate 263 as he was of the view that the matter needed
further investigation.
the Hon’ble Kolkata High Court in the case of Rajmandir Estates Private
Limited vs. Pr. CIT 386 ITR 162 (Cal) which has been affirmed by the
Hon’ble Supreme Court in the case of Daniel Merchants Private Limited vs.
ITO pronounced by the Hon’ble Supreme Court on 29.11.2017, that the CIT
is entitled to revise the assessment order u/s. 263 of the Act on the ground
that the Assessing officer did not make any proper enquiry while accepting the
explanation of the assessee.
5. Considering the above discussed facts and circumstances, I hold that the
assessment order passed u/s 143(3) of the Act vide order dated 23.12.2019 is
erroneous in so far as it is prejudicial to the interest of the revenue on the issues as
discussed above. Therefore, the said order passed by the Assessing Officer is partly
set-aside on this issues as discussed above with a direction to pass the same taking
into account the observation made herein above and after affording adequate
opportunity to the assessee.
6. The order u/s 263 of the Income tax Act, 1961 is passed accordingly.
xi. Being aggrieved by the order passed by the PCIT on 27 th March 2022,
the Appellant-Assessee filed an appeal before the ITAT, challenging the aforesaid
order and contending that the AO had fully verified the issue of difference in
turnover on account of reimbursement of expenses, and therefore, the original
assessment order under Section 143(3) of the Act was passed after conducting the
requisite enquiry/verification and on an appropriate application of mind, and thus,
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was not an order which was erroneous and prejudicial to the interests of the revenue
warranting the exercise of jurisdiction under Section 263 of the Act. The ITAT, by
the impugned order dated 2nd January 2023, dismissed the Appeal filed by the
Appellant-Assesee, on the ground that the Appellant-Assessee had not
appeared/responded to the queries of the PCIT, and the same were not furnished
before him to explain their stand. The ITAT further held that the order of the PCIT
was solely based on the record of the AO, which certainly reflected a deficiency in
terms and verification of all the aspects essential for assessment. The ITAT further
held that all the relevant aspects of the case had not been examined, and as the
Appellant-Assessee in the present case had neither complied with the notice issued
under Section 263 of the Act, nor had they appeared before the PCIT, the aforesaid
case was a fit case to exercise jurisdiction under Section 263 of the Act. The ITAT
also held that the matter of revenue reconciliation and reimbursement of expenses
was not done at all to ascertain the income properly, and since the Appellant-Assesse
did not turn up to attend the hearing before the PCIT, proceedings under Section
263 were rightly invoked by him. The relevant paragraphs of the order of the ITAT
are reproduced hereinbelow:-
6. Relevant para of notice u/s 142(1) and 263 we are reproducing herein below:
Notice u/s 142(1) of the Act
11. Please furnish the names and complete postal address of all the persons to
whom payments were made by way of Commission, Brokerage or Incentives.
Also explain which services were rendered by them along with the agreements
for the same. With reference to commission paid, please furnish details in the
following format:-
Name and Name and address Sales Percentage of Commission TDS Commission Nature of
address of the of the sales party amount Commission (Gross) (Net) ServicesPage 10 of 27
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person to whom with respect to
commission etc which commission
paid etc paid
16. Please furnish the complete reconciliation of
26AS/CIB/AIR/OLTAS/ServicesTax/STT/Sales- tax Return with Audited
books and ITR.
29. Please submit reconciliation of income as per IT and 26AS in the
following format:
Name of Section under Income TDS made Income as TDS Difference if Reasons for
the party which TDS was Credited as per 26AS per ITR claimed in any mismatch
made during the ITR
year as per
26AS
30. Please provide following details:
a) Sales ledger and sales return ledger.
b) Copy of service tax/VAT/Excise return if any filed during the FY 2016-
17.
c) Reconciliation between the figures of sales turnover reported in IT and
audit report (Form 3CD)
7. We observed the main objection to the Ld. PCIT is as enumerated in para 2.1
and 2.2 of his notice u/s 263.
“2.1. Further, it is seen that there is difference in sales as per 26AS and as per
Books amounting to Rs. 46,134/- which was also admitted by the assessee
vide letter dated 14.12.2019, during the e-proceedings and told this office to
add back in the assessment order, which remained to be done by the AO.
Hence there is escapement of income u/s 28 to the tune of Rs. 46,134/-, due
to mismatch as per
26AS and its Books.
2.2. This is not as per accounting principles, as reimbursement of expenses, is
in the form of receipt of revenue from FB and Twitter, for assessee, working
on behalf of them in India and cannot be reduced from Turnover, as the
assessee is in turn recovering the same from clients in India. The same should
have been verified by the AO before passing the assessment order.”
8. As per assessee the objection of Ld. PCIT were duly taken care of while
responding point no. 11, 16, 29 and 30 of notice u/s 142(1). It is observed that
Assessee is working on behalf of FB and Twitter in India and recovering amount
due from the clients to be further reimbursed to Face Book and Twitter. Whatever
the amount assessee billed to the clients on behalf of FB and Twitter includes service
tax also. Although the sheets in the form of reconciliation between form no. 26AS
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and books were furnished to the AO during the assessment proceedings but the
same were never produced before the Ld. P.CIT in-compliance to notice u/s 263.
9. It is further noted vide para 4.3 of the Ld. PCIT order u/s 263 that he has
gone through the case records of the assessment proceedings, AO has not verified
relevant aspects to ascertain amount received, reimbursement made, compliance of
TDS etc.
10. Apparently, it seems that all the relevant information as required for
assessment has been furnished by the assessee. So, there can’t be any 263 order
against the assessee. But, as we observed that assessee neither appeared/ responded
to the queries of the Ld. PCIT and the same were not furnished before us also to
explain the concern. The order of Ld. PCIT is solely based on the record of AO
which certainly reflects a deficiency in terms of verification of all the aspects
essential for assessment. In our understanding any order which is erroneous and
prejudicial to the interest of revenue can be revised u/s 263. Even if it is assumed
that relevant information has been provided by the assessee but the same is not
evaluated properly by the AO, still order can be erroneous and prejudicial to the
interest of revenue.
11. We have gone through the judicial pronouncements relied upon by the
assessee and revenue. Each case has their own facts and only the ratio laid down on
legal front can be followed. The question before us is not of ascertainment of income
but whether the relevant aspects of the case have been examined properly by the AO
or not
12. We further observed that ITA NO.700/Mum/2021 in the case of Piramal
Investment Opportunities Fund relied upon by the assessee is distinguishable as the
same is on the matter of limited scrutiny and case of the assessee is of full scrutiny.
Farther the case of Rediffusion Brand Solution Pvt. Ltd. Vide ITA NO.
v920/Mum/2021 relied upon by the assessee is again distinguishable as in this case
Ld. PCIT was not able to point out as to what further enquiries ought to have been
conducted by the AO moreover, Ld. PCIT assessee complied with the notice u/s
263 whereas in this case assessee neither complied with the requirements of sec 263
nor Ld. PCIT lacked in issuance of appropriate directions to improve the assessment
order. As mentioned supra the basic conditions to attract sec. 263 are that order
must be erroneous and prejudicial to the interest of revenue. Relevant findings out
of the order U/s. 263 of Ld. PCIT are as under:-
“The AO has simply accepted the explanation of the assessee without
verifying the purpose and nature of expenditure incurred. The Bangalore
Tribunal, in the case of Bovis Lend Lease (1) P Ltd vs ITO, noted that the
following parameters are essential for a payment to be regarded as
reimbursement:
The actual liability to pay should be of the person who reimburses the
money to the original payer.
The liability should be clearly determined. It should not be an
approximate or varying amount.
The liability should have crystallized. In other words, the reason given
that payment that were never required but were made just to avoid a potential
problem may not qualify.
There should be a clear ascertainable relationship between the paying and
reimbursing parties. Therefore, alleged reimbursement by an unconnected
person may not qualify.
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The payment should first be made by somebody whose liability it never
was and the repayment should then be made to that person to square off the
account.
Three parties should exist in a case of reimbursement-a payer, a payee and
a reimburser (i.e., the person reimbursing the amount to the payer)
It is seen from the case records that the AO has not verified all these aspects to
ascertain that do the sum received qualifies to be actually reimbursement of
expenses or not. Further, the A was required to verify the expenses so
incurred for the purpose that whether these includes payments in the nature
of FTS or contract receipts (194C) which attracts obligation to deduct tax at
source. Since these necessary inquiries were not carried out by the Assessing
Officer, the assessment order is rendered erroneous and prejudicial to the
interests of the Revenue. The order, therefore, requires to be revised. Further,
considering the facts of the case, reliance is placed on the following ruling:
In the case of Gee Vee Enterprises v. Additional Commissioner of Income-tax
[1975] 99 IT 375 (DELHI), upheld by the Supreme Court in Malabar
Industrial Co. Ltd. V.Commissioner of Income-tax (2000] 109 Taxman 66
(SC), it has been held:
“The Income-tax Officer is not only an adjudicator but also an investigator.
He cannot remain passive in the face of a return which is apparently in order
but calls for further inquiry. It is his duty to ascertain the truth of the facts
stated in the return when the circumstances of the case are such as to provoke
an inquiry. The meaning to be given to the word “erroneous in section 263
emerges out of this context. It is because it is incumbent on the Income-tax
Officer to further investigate the facts stated in the return when circumstances
would make such an inquiry prudent that the word “erroneous” in section
263 includes the failure to make such an inquiry.
The order becomes erroneous because such an inquiry has not been made and
not because there is anything wrong with the order if all the facts stated
therein are assumed to be correct.”
In this judgment the Delhi High Court referred to earlier decisions of the
Supreme Court in Rampyari Devi Sarogi v. CIT (1968] 67 ITR 84 (SC) and
Tara Devi Aggarwal V. CIT (1973] 88 /TR 323 (SC), wherein it has been
held that where Assessing Officer has accepted a particular contention/issue
without any enquiry or evidence whatsoever, the order is erroneous and
prejudicial to the interest of the Revenue After reference to these two
decisions, the Delhi High Court observed:-
“These two decisions show that it is not necessary for the Commissioner to
make further inquiries before cancelling the assessment order of the Income-
tax Officer.The Commissioner can regard the order as erroneous on the
ground that in the circumstarices of the case the Income-tax Officer should
have made further inquiries before accepting the statements made by the
assessee in his return”
In, the case of Commissioner of Income-tax-V v. Nagesh Knitwears (P.) Ltd
[2012] 22 taxmanh.com 309 (Delhi) the Hon. Delhi High Court
distinguished the action to be taken in the following cases: One where there is
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total absence of enquiry or verification in contra distinction to cases where
there is inquiry but the findings are incorrect/erroneous; and where there is
failure to make proper or full verification or inquiry. In the first category of
cases, where there is complete lack of inquiry, the matter is settled by the
Hon. Supreme Court Rampyari Devi Sarogi v. CIT [1968] 67 ITR 84 (SC)
and Tara Devi Aggarwal v. CIT (1973] 88 ITR 323 (SC), wherein it has been
held that where Assessing Officer has accepted a particular contention/issue
without any enquiry or evidence whatsoever, the order is erroneous and
prejudicial to the interest of the Revenue. In such type of cases it is not
necessary for the Commissioner to make further inquiries before cancelling
the assessment order of the Income-tax Officer as explained in the case of Gee
Vee Enterprises v. Additional Commissioner of Income-tax (1975] 99 IT 375
(DELHI). However in cases of full inquiry or partial verification or inquiry;
*the CIT has to come to the conclusion and himself decide that the order is
erroneous, by conducting necessary enquiry, if required and necessary, before
the order under Section 263 is passed. In such cases, the order of the
Assessing Officer will be erroneous because the order passed is not sustainable
in law and the said finding must be recorded. CIT cannot remand the matter
to the Assessing Officer to decide whether the findings recorded are
erroneous. In cases where there is inadequate enquiry but not lack of enquiry,
again the CIT must give and record a finding that the order/inquiry made is
erroneous. This can happen if an enquiry and verification is conducted by the
CIT and he is able to establish and show the error or mistake made by the
Assessing Officer, making the order unsustainable in Law. In some cases
possibly though rarely, the CIT can also show and establish that the facts on
record or inferences drawn from facts on record per se justified and mandated
further enquiry or investigation but the Assessing Officer had erroneously not
undertaken the same. However, the said finding must be clear, unambiguous
and not debatable. It is evident that the assessee, by not responding to the
notice issued us 263 has unwarranted any further enquiry on this issue.
In CIT v Amitabh Bachchan (2016] 384 IT 200 (SC) the Apex court held
that Section 263 does not require any specific show cause notice detailing
specific grounds on which revision of assessment order is tentatively being
proposed. Commissioner is free to exercise his jurisdiction on all issues,
provided an opportunity of hearing is afforded to assessee to contest facts on
basis of which he had exercised revisional jurisdiction, Even if AO has applied
his mind, CIT may, initiate 263 as he was of the view that the matter needed
further investigation.
the Hon’ble Kolkata High Court in the case of Rajmandir Estates Private
Limited vs. Pr. CIT 386 ITR 162 (Cal) which has been affirmed by the
Hon’ble Supreme Court in the case of Daniel Merchants Private Limited vs.
ITO pronounced by the Hon’ble apieme Court on 29.11.2017, that the CIT
is entitled to revise the assessment order us. 263 c of the Act on the ground
that the Assessing officer did not make any proper enquiry while accepting
the explanation of the assessee.”
13. We found the decision of honorable jurisdictional high court in the case of CIT
Vs. Ballarpur industries Ltd. (2017) 85 Taxmann.com 10 (Bom.) relevant on this
issue and ITAT Chennai Bench in the case of Sify Software Ltd. v/s ACIT (2017)
80 Taxmann.com 273 also followed the case of Ballarpur Industries Ltd. (supra).
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14. In view of the above facts and judicial pronouncements we are of the opinion
that matter of revenue reconciliation and reimbursement of expenses was not done
at all to ascertain the income properly. We sustain the order of Ld. PCIT as he has to
relied upon the records of assessment proceedings only as assessee has not turned up
to attend the hearing u/s. 263 on the subject matter.
15. In these terms we sustain the order of Ld. PCIT with a safeguard that a proper
opportunity of being heard and represent the matter before AO to the assessee.
Assessee is directed to co-operate with the AO and bring on record the relevant
evidences to substantiate his claims like relevant agreements, role of each party i.e.
Payer, payee and agent, compliances with reference to T.D.S etc.
16. In the result, appeal filed by the assessee is dismissed.
xii. On 27th September 2023, the Appellant-Assessee filed a Rectification
Application under Section 254(2) of the Act, pointing out the mistakes apparent
from the record in the impugned order, which went to the root of the matter,
praying that the impugned order passed by the ITAT be recalled and the Appeal of
the Appellant-Assessee be heard afresh.
xiii. On 12th March 2024, the application filed by the Appellant-Assessee
under Section 254(2) of the Act was dismissed, and it was held that the subject
matter of the said application was such that it would tantamount to the ITAT
reviewing its own order. The relevant findings of the aforesaid order of the ITAT are
reproduced below:-
“3. We have carefully considered the application of the assessee filed u/s. 254(2)
of the I. T. Act 1961 alongwith order of Bench dated 02.01.2023. On this issue, we
have gone through the records available before us at the time of pronouncing the
order and specifically the order of Ld. PCIT-6 passed u/s. 263 of the I.T. Act 1961
which categorically mentioned that during the hearing before him u/s. 263 of the
I.T. Act, assessee failed to comply, hence the present order u/s. 263 of the Act was
passed. This fact was never under challenge by assessee before us.
4. Notwithstanding, the above facts even in the M.A. filed by the assessee vide
page no. 3, para 14(II) assessee again submitted as under:-
“(ii) The finding given by the Tribunal at Para 10 of its order that – But as we
observed that assessee neither appeared/responded to the queries of the Ld. PCIT
and the same were not furnished before us to explain the concern. It is submitted
that the Appellant had filed notice dated 21 October 2019 and letter dated 29Page 15 of 27
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November 2019, 14 December 2019 and other relevant documents before the
Tribunal which clearly show that the aspect of revenue reconciliation and
reimbursement of expenses was enquired by the Assessing Officer. Therefore, the
finding of the Tribunal that the Appellant has not the documents is a mistake
apparent from record.”
5. As discussed (supra), even in M.A. filed by the assessee, he accepted that no
compliance during the proceedings before Ld. PCIT were made, may be on merits
case of the assessee will not alter but assessee is duty bound to comply before the Ld.
PCIT. As far as applying /distinguishing a particular judicial pronouncements relied
upon by the assessee /revenue is a conscious evaluation by the Bench and can never
be a subject matter of application filed u/s. 254(2) of the Act as the same will
tantamount to review its own order.
6. Considering the above facts and discussion, we do not find the application of
the assessee fit to be allowed as per the provisions of section 254(2) of the Act,
hence dismissed.
7. In the result, the present M.A. filed by the assessee is dismissed.”
SUBMISSIONS:-
4. We have heard Mr. Nishant Thakkar, along with Mr. Hiten Thakkar, Jasmin
Amalsadvala, and Yachika Bhabal, instructed by Lumiere Law Partners, learned
Counsel on behalf of the Appellant-Assessee, and Mr. Akhileshwar Sharma, learned
Counsel on behalf of the Respondent-Revenue.
5. Learned Counsel on behalf of the Appellant-Assessee, Mr. Thakkar,
contended that the order passed by the ITAT is erroneous and has been passed
without appreciating the facts and law. It was submitted that during the course of
the assessment proceedings, the AO, by notice dated 21 st October 2019 had raised
specific queries which sought details with respect to reconciliation of
26/AS/CIB/AIR/OLTAS/ServiceTax/SIT/Sales-tax return with audited books of
account and the return of income, along with reconciliation of income and 26AS
statement. He further contended that all the aforesaid queries were duly replied to
by the Appellant-Assessee, and the difference in revenue reported on account of
reimbursement of expenses and the tax deducted at source on the reimbursement of
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expenses on payment to the media companies were duly reported. It was further
submitted that the ITAT had, only on account of non-appearance of the authorised
representatives of the Appellant-Assessee on one occasion in response to the notice
under Section 263 of the Act, dismissed the appeal filed by the Appellant-Assessee
and upheld the revision proceedings. He therefore submitted that such an approach
of the ITAT was erroneous, as the present case was not one of lack of enquiry or
verification of details by the AO at the time of assessment proceedings, warranting
invocation of the provisions of Section 263 of the Act by the PCIT. Further, he also
submitted that the assessment order dated 23rd December 2019 was neither
prejudicial, nor erroneous to the interests of the revenue. The reimbursement of
expenses on account of media cost, even if included in the total income, the
corresponding payment of the same to the online media companies would qualify
for deductions, thereby having no impact on the income chargeable to tax. He
further submitted that the TDS was also deducted on the reimbursement of media
cost, and as the said media cost was not routed through the profit and loss account,
no deduction was claimed by the Appellant-Assessee for the expenses which were
reimbursed by the clients on account of media cost. The entire transaction, as
submitted by learned Counsel on behalf of the Appellant-Assessee, was therefore not
erroneous or prejudicial to the interests of the revenue, as the same did not have an
impact on the income chargeable to tax. He therefore submitted that the impugned
order passed by the ITAT is liable to be quashed and set aside.
6. Per contra, learned counsel, Mr. Akhileshwar Sharma on behalf of the
Respondent Revenue contended that the impugned order passed by the ITAT is a
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well-reasoned order and has rightly upheld the revisionary proceedings as initiated
by the PCIT. He contended that the Appellant-Assessee had failed to appear before
the PCIT and submit the details as called for, and therefore there was a lack of
enquiry on the part of the AO while passing the assessment order dated 23 rd
December 2019, particularly in respect of the reimbursement of expenses paid to
media companies, which was not included in the turnover of the Appellant-Assessee.
Therefore, he submitted that the order passed by the ITAT was required to be
upheld, and the revisional jurisdiction had been rightly exercised by the PCIT.
ANALYSIS:-
7. We have learned Counsel on behalf of the parties, and also perused the orders
passed by the AO, the PCIT, and the ITAT. We are of the view that the ITAT has
erred in passing the impugned order and upholding the revisionary powers exercised
by the PCIT without appreciating the facts and law. We are further of the view that
the ITAT, quite untenably has upheld the order of the PCIT, namely that the
Appellant-Assessee did not appear before the PCIT on one single occasion in
response to the show cause notice dated 24 th February 2023 under Section 263 of
the Act. The forgoing discussion will aid the aforesaid conclusion that we have
reached at.
8. The ITAT, while reaching its findings, which are reproduced in paragraph
3(xi) above, has in fact started with the following lines:-
“10. Apparently, it seems that all the relevant information as required for
assessment has been furnished by the assessee. So, there can’t be any 263 order
against the assessee. But, as we observed that assessee neither appeared/ responded to
the queries of the Ld. PCIT and the same were not furnished before us also to explain
the concern. The order of Ld. PCIT is solely based on the record of AO whichPage 18 of 27
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certainly reflects a deficiency in terms of verification of all the aspects essential for
assessment. In our understanding any order which is erroneous and prejudicial to the
interest of revenue can be revised u/s 263. Even if it is assumed that relevant
information has been provided by the assessee but the same is not evaluated properly
by the AO, still order can be erroneous and prejudicial to the interest of revenue.”
9. It is apparent from the above finding of the ITAT that there is an inherent
contradiction in the approach of the ITAT while upholding the revisionary
proceedings, in as much as the ITAT accepts that all the information as required for
assessment was on the record before the AO and hence, Section 263 of the Act was
not warranted. Thus merely on the ground of non-appearance of the Appellant-
Assessee, the ITAT upheld the revisionary proceedings. Such approach of the ITAT
to our mind is not reliable and erroneous.
10. We are further of the view that the ITAT has lost sight of the fact that the
Appellant-Assessee, by the letters dated 29 th November 2019, 14th December 2019,
and 17th December 2019 had filed details and elaborately explained to the AO the
difference in the revenue reported on account of reimbursement of expenses to
media companies and the tax deducted at source on the reimbursement of expenses
while making payment. Therefore, the present case was not that of a lack of enquiry
or inadequate enquiry on the part of the Appellant-Assessee.
11. We are further of the view that the ITAT did not appreciate that there was no
prejudice caused to the revenue, as the reimbursement of expenses on account of
media cost, even if included in the total income of the Appellant-Assessee, the
corresponding payment of the same to media companies would qualify as a
deduction, and hence have no impact on the income chargeable to tax. The ITAT
has therefore proceeded to pass the impugned order without appreciating the
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principles of law that in revisionary proceedings, twin conditions are to be satisfied,
i.e., (i) the order should be erroneous, (ii) by virtue of the order, prejudice should
have been caused to the revenue.
12. This Court in the case of Commissioner of Income Tax Vs. Gabriel
India Ltd.1 has held that the power of suo moto revision under Section 263(1)
of the Act can be exercised only if such circumstances exist. It was held that for
powers of revision under Section 263 of the Act, two circumstances must exist
to enable the Commissioner to exercise the revisionary jurisdiction, i.e., (i) the
order is erroneous, (ii) by virtue of the order prejudice is caused to the
Revenue. It is therefore to be considered firstly whether the order is said to be
erroneous, and further if an Income Tax Officer (ITO) has acted in law and has
made a 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. If the ITO while making an assessment of the
accounts has examined the accounts and made enquiries and applied his mind
to the facts and circumstances of the case and determined the income either by
accepting the account or by making the estimate itself, then the Commissioner
cannot substitute the aforesaid order and reexamine the accounts by invoking
Section 263 of the Act by terming the order erroneous or prejudicial to the
Revenue. Relevant paragraphs of the decision are reproduced below: –
8. According to the Commissioner, the order of the ITO did not disclose any
application of mind. He issued the notice as he felt that the expenditure in
question might be a capital expenditure. But despite examining the matter at
length and hearing the assessee, he could not come to any conclusion that the
expenditure was not revenue expenditure but expenditure of capital nature. He
1
(1989) 176 ITR 349Page 20 of 27
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referred the matter back to ITO to examine the same and to decide afresh. The
Tribunal did not approve such action of the Commissioner. Therefore, the
question that arises for consideration is whether the Commissioner without
arriving at a finding that the order in question was erroneous can set aside the
assessment in exercise of power under section 263. It may be expedient at this
stage to set out section 263. Section 263, so far as relevant, runs as follows:
“263. Revision of orders prejudicial to revenue — (1) The Commissioner
may call for and examine the record of any proceeding under this Act, and
if he considers that any order passed therein by the Income-tax Officer is
erroneous insofar as it is prejudicial to the interests of the revenue, he may,
after giving the assessee an opportunity of being heard and after making or
causing to be made such inquiry as he deems necessary, pass such order
thereon as the circumstances of the case justify, including an order
enhancing or modifying the assessment, or cancelling the assessment and
directing a fresh assessment.
(2) No order shall be made under sub-section (1)–
(a) to revise an order of reassessment made under section 147, or
(b) after the expiry of two years from the date of the order sought to
be revised.”
From a reading of sub-section 1 of section 263, it is clear that the power of suo
motu revision can be exercised by the Commissioner only if, on examination of
the records of any proceedings under this Act, he considers that any order passed
therein by the ITO is ‘erroneous insofar as it is prejudicial to the interests of the
revenue’. It is not an arbitrary or unchartered power. It can be exercised only on
fulfilment of the requirements laid down in sub-section (1). The consideration of
the Commissioner as to whether an order is erroneous insofar as it is prejudicial
to the interests of the revenue, must be based on materials on the record of the
proceedings called for by him. If there are no materials on record on the basis of
which it can be said that the Commissioner acting in a reasonable manner could
have come to such a conclusion, the very initiation of proceedings by him will be
illegal and without jurisdiction. The Commissioner cannot initiate proceedings
with a view to starting fishing and roving enquiries in matters or orders which
are already concluded. Such action will be against the well-accepted policy of law
that there must be a point of finality in all legal proceedings, that stale issues
should not be reactivated beyond a particular stage and that lapse of time must
induce repose in and set at rest judicial and quasi-judicial controversies as it must
in other spheres of human activity- [See Parashuram Pottery Works Co. Ltd. v.
ITO [1977] 106 ITR 1 (SC), at page 10].
9. As observed in Sirpur Paper Mills Ltd. v. ITO [1978] 114 ITR 404 (AP) by
Raghuveer, J. (as his Lordship then was), the Department cannot be permitted to
begin fresh litigation because of new views they entertain on facts or new
versions which they present as to what should be the inference or proper
inference either of the facts disclosed or the weight of the circumstances. If this is
permitted, litigation would have no end, ‘except when legal ingenuity is
exhausted’. To do so, is ‘. . . to divide one argument into two and to multiply the
litigation’.
10. The power of suo motu revision under sub-section (1) 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
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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 interests of the revenue. It has, therefore, to be considered firstly as
to when an order can be said to be erroneous. We find that the expressions
‘erroneous’, ‘erroneous assessment’ and ‘erroneous judgment’ have been defined
in Black’s Law Dictionary. According to the definition/erroneous’, means
‘involving error; deviating from the law’. ‘Erroneous assessment’ refers to an
assessment that deviates from the law and is, therefore, invalid, and is a defect
that is jurisdictional in its nature, and does not refer to the judgment of the
Assessing Officer in fixing the amount of valuation of the property. Similarly,
‘erroneous judgment’ means ‘one rendered according to course and practice of
Court, but contrary to law upon mistaken view of law, or upon erroneous
application of legal principles’.
11. From the aforesaid definitions it is clear that an order cannot be termed as
erroneous unless it is not in accordance with law. If an ITO acting in accordance
with law makes a 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
the 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 the
ITO while making an assessment examines the accounts, makes enquiries,
applies his mind to the facts and circumstances of the case and determines the
income either by accepting the accounts or by making some estimate 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 left to the
Commissioner, he would have estimated the income at a figure higher 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 interests 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, viz., that the order is erroneous,
is absent. 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. As observed in Dawjee Dadabhoy & Co. v. S.P. Jain [1957] 31 ITR 872
(Cal.), at page 881, “the words ‘prejudicial to the interests of the revenue’ have
not been defined, but it must mean that the orders of assessment challenged are
such as are not in accordance with law, in consequence whereof the lawful
revenue due to the State has not been realised or cannot be realised. It can mean
nothing else”. The aforesaid observations were also applied by the Gujarat High
Court in Addl. CIT v. Mukur Corpn. [1978] 111 ITR 312. We are of the
opinion that the aforesaid interpretation given by the Calcutta High Court to the
expression ‘prejudicial to the interests of the revenue’ is the correct
interpretation.
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13. We, therefore, hold that in order to exercise power under sub-section (1) of
section 263 there must be material before the Commissioner to consider that the
order passed by the ITO was erroneous insofar as it is prejudicial to the interests
of the revenue. We have already held what is erroneous. It must be an order
which is not in accordance with the law or which has been passed by the ITO
without making any enquiry in undue haste. We have also held as to what is
prejudicial to the interests of the revenue. An order can be said to be prejudicial
to the interests of the revenue if it is not in accordance with the law in
consequence whereof the lawful revenue due to the State has not been realised or
cannot be realised. There must be material available on the 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 record 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 examine whether the relevant objective factors were available from
the records called for and examined by such authority. Our aforesaid conclusion
gets full support from a decision of Sabyasachi Mukharji, J. (as his Lordship then
was) in Russell Properties (P.) Ltd. v. A. Chowdhury, Addl. CIT [1977] 109 ITR
229 (Cal.). In our opinion, any other view in the matter will amount to giving
unbridled and arbitrary power to the revising authority to initiate proceedings
for revision in every case and start re-examination and fresh enquiries in matters
which have already been concluded under the law. As already stated, it is a quasi-
judicial power hedged in 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 insofar as it is prejudicial to the interests of the
revenue, is a quasi-judicial act because on this consideration or opinion the
whole machinery of re-examination and reconsideration of an order of
assessment, which has already been concluded and controversy which has been
set at rest, is set again 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 the records called for by the Commissioner.
(emphasis supplied)
13. Further, in the following decisions, revisionary proceedings have been
quashed where adequate enquiry and specific queries were raised by the AO at the
time of the original assessment order:-
i. In the case of Principal Commissioner of Income-tax Central v. Prabhu Poly
Pipes Ltd2 the AO had completed assessment proceedings under Sections 153A and
143(3) of the Act and had taken a plausible view with regard to unsecured loans and
2
[2025] 176 taxmann.com 1005 (SC)Page 23 of 27
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the identity, creditworthiness and genuineness of the cash creditors. The Appellant-
PCIT had thereafter passed a revisionary order under Section 263 of the Act,
alleging that the AO in that case had not made any enquiry about the
creditworthiness and identity of loan providers and the genuineness of transactions
in respect of unsecured loans. The ITAT had however, set aside the order passed by
the Appellant-PCIT under Section 263, and had held that the AO had raised
necessary queries with regard to the issue under consideration and on being satisfied
with such details and accepting the identity, creditworthiness and genuineness of the
cash creditors had taken a plausible view. The ITAT further held that the Appellant-
PCIT had only given a general observation that the AO had not conducted the
necessary enquiry with regard to unsecured loans and their genuineness but had not
given any specific finding as to what the information was which the AO had not
called for, and also had not given any comment on such information before holding
the assessment order in question as erroneous and prejudicial to the interests of the
revenue. The Appellant-PCIT had thereafter filed an appeal before the Calcutta
High Court under Section 260-A of the Act, wherein the Court had agreed with the
findings of the ITAT and held that no question of law, much less a substantial
question of law arose for consideration in that case, thereafter dismissing the appeal
filed by the Appellant-PCIT. Upon appeal by the Appellant-PCIT, the Supreme
Court, while dismissing the SLP, had held that it found no reason to interfere with
the decision of the Calcutta High Court.
ii. In Commissioner of Income-tax, Mumbai v. Chandan Magraj Parmar 3 the
3
[2022] 135 taxmann.com 55 (Bombay)
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facts of the case revolve around the Respondent-Assessee while joining a firm as a
partner had, given an agricultural land as part of his share of capital in partnership.
Subsequently, when the agricultural land was sold, the Respondent-Assessee had
sought to claim an exemption in his return of income as Long Term Capital gain.
The AO in that case had raised queries with regard to the claim of capital gain on
transfer of land, and the Respondent-Assessee had furnished a detailed reply
pertaining to the capital gain on the aforesaid agricultural land. The Appellant-PCIT
had however, passed an order under Section 263 of the Act revising the assessment
order, claiming that the AO had not raised any query regarding the sale of the
aforesaid agricultural land. The revision order under Section 263 of the Act was
challenged by the Respondent-Assessee before the ITAT, which had quashed the
same and held that the claim of capital gain was accepted by the AO after making
the necessary inquiry. The ITAT further held that while it was true that the AO has
not passed any written detailed order while accepting the explanation of capital gains
of the Respondent-Assessee, but the fact that the AO had raised queries and the
Respondent-Assessee had given a detailed reply to the said query meant the AO had
passed the assessment order after making necessary inquiries. Upon an appeal by the
Appellant-PCIT before this Court, this Court had agreed with the findings of the
ITAT and held that the order of the AO could not be branded as erroneous merely
because the order did not contain the details which the Appellant-PCIT felt should
have been included. It was further held that where the AO during the scrutiny
assessment proceedings had raised a query which was answered by the Respondent-
Assessee to the satisfaction of the AO, the same was not reflected in the assessment
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order by him, the Appellant-PCIT could not conclude that no proper inquiry with
respect to the issue was made by the AO and enable him to assume jurisdiction
under Section 263 of the Act.
14. We are further of the view that the reliance by the ITAT on the decisions in
CIT Vs. Ballarpur Industries Ltd.4 and Sify Software Ltd. v/s ACIT5 is not apposite
to the facts of the present case to uphold the revisionary proceedings, in as much as
in Ballarpur Industries (supra) and Sify Software (supra), the AO had not raised any
query with regard to the deduction under section 80 HHC of the Act and with
regard to the deduction claim with regard to depreciation on tangible assets
respectively. Therefore, on that fact pattern, the revisionary proceedings were
upheld by the Court, as the AO had not raised any queries.
15. However, in the present case the aforesaid decisions would not have any
application as held by us in the earlier paragraphs, a specific query was raised by the
AO by way of the notice dated 21st October 2019, issued prior to the passing of the
assessment order, specifically requiring the Appellant-Assessee to file details with
respect to reconciliation of 26AS/CIB/AIR/OLTAS/ServiceTax/STT/Sales-tax
return with audited books of account and the return of income, and reconciliation of
income as per return of income and 26AS statement. All these queries were duly
replied to by the Appellant-Assessee, and therefore, in our view, this was not a case
of lack of inquiry or inadequate enquiry on the part of the AO which rendered the
assessment order dated 2nd January 2023 erroneous and prejudicial to the interest of
4
(2017) 85 Taxmann.com 10 (Bom.)
5
(2017) 80 Taxmann.com 273
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the revenue, warranting revision proceedings under Section 263 of the Act. Further,
the PCIT also had not raised any further queries or made any further enquiries prior
to the passing of the order under Section 263 of the Act and proceeded to pass a
bald order invoking the provisions of Section 263 of the Act. The imprimatur of the
ITAT to such an order of the PCIT, primarily on the ground that the Appellant-
Assessee failed to appear before the PCIT during revision proceedings would
amount to exercising revision proceedings without the warrant of law. This to our
mind cannot be the approach of the ITAT, and further, the dismissal of the
miscellaneous application filed by the Appellant-Assessee by its order dated 12 th
March 2024 has only added to upholding the erroneous view taken by the
impugned order passed by the ITAT.
16. In the light of the above discussion, the appeal needs to suceed on the
questions of law as raised hereinabove, which are answered in favour of the assessee
and against the revenue. The impugned order dated 2 January 2023 as passed by the
ITAT, is accordingly quashed and set aside.
17. The appeal is allowed. No costs.
(AARTI SATHE, J.) (G. S. KULKARNI, J.)
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