SC Dismisses SLP; AO’s Inquiry on TDS Bars Section 263 Revision.

By | November 13, 2025
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SC Dismisses SLP; AO’s Inquiry on TDS Bars Section 263 Revision.

Issue

Whether a Principal Commissioner (PCIT) can invoke revisionary jurisdiction under Section 263 of the Income-tax Act, 1961, on the grounds of “lack of detailed inquiry” when the Assessing Officer (AO) had, in fact, issued a query on the specific issue (TDS compliance) and had accepted the assessee’s detailed reply before passing the assessment order.

Facts

  • The assessee-company, for AY 2017-18, had paid advertisement expenses, legal fees, and service charges, but deducted TDS under Section 194J on only a part of the total payment.
  • During the original scrutiny assessment, the Assessing Officer (AO) issued a notice specifically asking the assessee to provide details of TDS payments.
  • In response, the assessee submitted a detailed reply, which included:
    1. A chart explaining the payments made.
    2. Evidence that it had obtained lower withholding tax certificates from the payees, which justified the partial/lower TDS deduction.
  • The AO considered this reply and made no disallowance under Section 40(a)(ia).
  • The Principal Commissioner (PCIT) later initiated Section 263 proceedings, claiming the AO’s order was erroneous and prejudicial to the revenue because the AO “did not examine in detail” the TDS issue.
  • The Tribunal and the High Court both quashed the PCIT’s revision order.
  • The Revenue filed a Special Leave Petition (SLP) to the Supreme Court.

Decision

  • The Supreme Court dismissed the Revenue’s SLP on the grounds of delay as well as on merits.
  • This decision upholds the High Court and Tribunal’s findings, which held that the PCIT’s order under Section 263 was invalid.
  • The core reasoning (from the lower courts, affirmed by the SC) was that the AO had applied their mind to the issue. By issuing a query and accepting the assessee’s detailed reply, the AO had taken a “plausible view.”
  • The PCIT’s action was not a case of “lack of inquiry” by the AO, but merely a “difference of opinion,” which is not a valid ground for invoking Section 263.

Key Takeaways

  • “Lack of Inquiry” vs. “Difference of Opinion”: This is the crucial test for a Section 263 revision. If the AO makes an inquiry (even a brief one) and accepts the assessee’s response, the order is not “erroneous” just because the PCIT would have made a more detailed inquiry.
  • AO’s Plausible View is a Shield: When an AO examines a specific issue (like TDS compliance) and accepts a plausible explanation from the assessee (like the existence of lower TDS certificates), the resulting order cannot be revised under Section 263.
  • PCIT Cannot Substitute Judgment: The revisionary power is not for substituting the PCIT’s judgment for that of the AO. The AO’s order must be unsustainably erroneous, which was not the case here.
  • SC’s Stamp of Approval: The Supreme Court’s dismissal “on merits” gives finality to this principle, strengthening the taxpayer’s defense against 263 revisions in cases where the AO has applied their mind.
SUPREME COURT OF INDIA
Principal Commissioner of Income-tax
v.
Reckitt Benckiser Healthcare India (P.) Ltd.*
Manoj Misra and Ujjal Bhuyan, JJ.
SLP (CIVIL) Diary No(s). 46920 of 2025†
OCTOBER  6, 2025
Ms. Madhulika Upadhyay, AOR, Digvijay Dam, Ms. Seema Bengani, Mrs. Rekha Pandey, Advs. and S. Dwarakanath, ASG for the Petitioner. R. Jawaharlal, Ms. Pavani Verma, Sayyam Maheshwari, Ms. Meghna Kumar, Mrs. Anumita Verma, Advs. and Mayank Kshirsagar, AOR for the Respondent.
ORDER
1. We do not find a good reason to condone the reported delay.
2. The Special Leave Petition is dismissed on ground of delay as well as on merits.
3. Pending application(s), if any, shall stand disposed of.
Karan Sanghani and Mrs Kalpana K. Raval, Advs. for the Appellant. Dhinal Shah, Adv. for the Respondent.
ORDER
Bhargav D. Karia, J.-This Tax Appeal is filed by the Revenue under Section 260A of the Income Tax Act, 1961 (for short, “the Act”) arising out of the order dated 25th January 2023 passed by the Income Tax Appellate Tribunal, ‘D’ Bench, Ahmedabad (for short, “the Tribunal”) in ITA No.169/Ahd/2022 for the Assessment Year 2017-18.
2. The Revenue has proposed the following substantial questions of law for the consideration of this Court:
“(i) Whether in the facts and circumstances of the case, the Appellate Tribunal misdirected itself in law so as to ignore the operation and purport of Section 263 of the Income-Tax Act, 1961 more particularly with regard to Explanation 2 of the said Section?
(ii) “Whether in the facts and circumstances of the case, the Appellate Tribunal erred in quashing the order passed under section 263 of the Act without appreciating that the assessee has failed to assess the claim of deduction of Advertisement expenses to the tune of Rs.61,60,52,053/- not allowable in accordance with the provisions of Section 40(a)(ia) of the Act and Rs.9,44,798/- in respect of service Expense paid to Reckitt Benckiser Ltd. which as per assessee’s own admission was wrongly claimed?”
3. The brief facts of the case are that the Principal CIT[PCIT] initiated proceedings under Section 263 of the Act on the ground that firstly, on examination of the assessment records, it was noticed that the assessee company had defaulted in making timely deposit of employee’s contribution to ESIC and PF within the stipulated time and hence the same was not allowable under Section 36(1)(va) of the Act and secondly, during the year under consideration, the assessee had debited a sum of Rs.76.24 Crores towards advertisement expenses, legal and professional fees and service charges. However, TDS under Section 194J of the Act for professional as per Tax Audit Form 3CD report and technical services was duly deducted on payment of Rs.18.85 Crores only. The Principal CIT was therefore of the opinion that on the remaining payment of Rs.57.39 Crores, no TDS was deducted and the same was to be disallowed under Section 40(a)(ia) of the Act. As the Assessing Officer did not examine these aspects during the course of assessment proceedings, the Principal CIT asked the assessee to explain as to why the order passed by the Assessing Officer should not be set aside being erroneous and prejudicial to the interest of the Revenue.
4. The Principal CIT accepted the contention of the assessee regarding late deposit of PF / ESI and agreed that the same were filed within due date prescribed and the proceedings initiated under Section 263 of the Act on this ground was dropped. However, with respect to the ground regarding non-deduction of TDS, the Principal CIT held that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue as the Assessing Officer did not examine in detail the issue regarding deduction of TDS and certain infirmities in the submissions placed on record by the assessee on the applicable rate regarding deduction of TDS was highlighted. The Principal CIT also found that the Assessing officer failed to examine certain payments made to oversees non-resident entities on the applicability of the India-UK DTAA in respect of the same. The Principal CIT, therefore, set aside the assessment order on the above ground.
5. Being aggrieved, the respondent – assessee preferred an appeal before the Tribunal contending that the issue regarding TDS on various payments was examined by the Assessing Officer during the assessment proceedings referring to notice dated 20th June 2019 wherein specific query regarding TDS on various payments raised by the Assessing Officer. It was also contended that the assessee submitted detailed reply providing details of payment and applicable TDS and compliance thereof by letter dated 10th December 2019. The respondent assessee contended that contended that it was not a case where the Assessing Officer did not make the relevant inquiry or that there was absence of response on behalf of the assessee. It was also pointed out that in the immediately preceding year, on absolute identical facts, the Principal CIT issued a notice under Section 263 of the Act on the ground of non-examination of deduction of TDS by the Assessing Officer and such proceedings were subsequently dropped.
6. The Tribunal, after considering the submissions of the respondent – assessee and the Departmental Representative, allowed the appeal by observing as under:
“5. We have heard the rival contentions and perused the material on record. In our considered view, this is not a case where there is an absolute lack of enquiry made by the AO in respect of TDS payments. As submitted above, the AO issued notice asking the assessee to provide details of TDS payments and in response to such query, the assessee gave a reply which was duly considered and admitted by the AO and no disallowance under section 40(a)(ia) of the Act was made during the course of assessment proceedings. On the merits of the case, we observe that the assessee during the course of 263 proceedings had submitted that almost all payments had been subject to TDS and a reconciliation of payments and TDS thereon was submitted during course of 263 proceedings, which was also produced before us for our consideration. We note that in respect of advertisement expenses, approximately 90% of the expenses were subject to TDS at the applicable rates and in some cases where TDS was not deducted, the assessee has been able to satisfactorily explain the same. The legal and professional expenses were also subject to TDS at the rate of 10% on most of the payments and in some cases TDS was not deducted since the payments were below the threshold limit or on account of non-applicability of TDS in respect of overseas payment in view of the applicable provisions of the India-UK Tax Treaty.”
7. Considering the facts, the Tribunal came to the conclusion that the order can be said to be erroneous if the Assessing Officer fails to apply the law rightly on the facts of the case and so far as the adequacy of inquiry is concerned, there is no law which provides the extent of inquiry to be made by the Assessing Officer and it is the prerogative of the Assessing Officer to make inquiry to the extent he feels proper and the Commissioner of Income Tax, by invoking the revisional power, cannot impose his own understanding of the extent of inquiry. The Tribunal, by referring to and relying upon the decision of the Hon’ble Delhi High Court in the case of CIT v. Sunbeam Auto Ltd.  ITR 167 wherein the distinction between the lack of inquiry and inadequate inquiry was made by the Court to hold that where the Assessing Officer had made inquiry prior to the completion of the assessment, the same cannot be set aside under Section 263 of the Act on the ground of inadequate inquiry. The Tribunal also relied upon the decision of the Hon’ble Bombay High Court in the case of Commissioner to Income-tax v. Gabriel India Ltd  ITR 108 and after considering the legal position, the Tribunal arrived at findings of fact that the assessee gave a detailed chart regarding payments made towards advertisement expenditure, legal and professional fees and service charges, which, according to the Principal CIT was not satisfactorily explained by the assessee. It was also found by the Tribunal that the assessee also obtained lower withholding tax certificate from the payee and deducted taxes at the rates mentioned in the certificate. It was, therefore, concluded that merely because the Principal CIT, on perusal of record, is of the opinion that estimate made by the concerned Assessing Officer was inadequate and the assessment order cannot be said to be erroneous and prejudicial to the interest of the Revenue.
8. The Tribunal, therefore, held that the facts of the present case would not fall within the category of no inquiry made by the Assessing Officer during the course of assessment proceedings and it is also not the case of the Principal CIT that the Assessing Officer failed to apply his mind to the issues on hand or he had omitted to make inquiry altogether or had taken a view which was not legally plausible.
9. In view of the foregoing, the Tribunal cannot be said to have committed any error in allowing the appeal of the assessee by quashing and setting aside the order passed by the Principal CIT under Section 263 of the Act. In the overall view of the matter, we are convinced that the decision of the Tribunal is correct and requires no interference.
10. We are, therefore, of the opinion that no questions of law much less any substantial question of law would arise from the impugned order passed by the Tribunal. The appeal is, accordingly, dismissed. No order as to costs.