Reassessment under Section 263 is invalid when Assessing Officer conducted proper inquiry during assessment

By | August 6, 2026
0 Comment

Reassessment under Section 263 is invalid when Assessing Officer conducted proper inquiry during assessment

Issue

  • Whether a Principal Commissioner of Income Tax (PCIT) can validly invoke revisionary powers under Section 263 on grounds of lack of inquiry when the Assessing Officer (AO) had issued specific queries regarding 26AS/service tax reconciliations and accepted the assessee’s detailed responses.

  • Whether a PCIT’s revision order passed without making independent inquiries or raising further queries can be sustained merely because the assessee failed to appear during Section 263 proceedings.

Facts

  • The assessee, a digital marketing firm, purchased online media for clients, recovered media costs, and charged a separate 4%–7% campaign management fee as income.

  • During assessment for AY 2017-18 under Section 143(3), the AO issued a notice under Section 142(1) seeking reconciliation of Form 26AS/CIB/AIR data with audited books and tax returns.

  • The assessee furnished reconciliations, admitted a minor difference of ₹0.46 lakhs, and accepted its addition.

  • The AO subsequently issued a show-cause proposing an addition of ~₹19.07 crores based on differences between turnover per Form 3CD/P&L and service tax returns.

  • The assessee explained that reimbursements of ~₹17.26 crores were excluded from turnover as they were non-income media cost pass-throughs, submitting AS-9 reconciliations, party-wise details, and TDS proof.

  • The AO accepted the explanation and completed the assessment under Section 143(3) without making further additions on this count.

  • The PCIT passed a Section 263 order setting aside the assessment, alleging that the AO failed to verify the ₹17.26 crore reimbursement reduction, rendering the assessment erroneous and prejudicial to the Revenue.

  • The ITAT sustained the PCIT’s revision order, primarily pointing to the assessee’s non-appearance/non-response during the Section 263 proceedings.

Decision

  • Sufficient Inquiry by AO: The AO had specifically raised detailed queries regarding the 26AS, AIR, and service tax reconciliations, which were fully answered with documentary evidence; hence, it was not a case of lack of inquiry or inadequate inquiry.

  • Failure of Independent Inquiry by PCIT: The PCIT failed to conduct any independent verification or raise further queries before issuing a bald revision order under Section 263.

  • ITAT Order Set Aside: The Tribunal erred in endorsing the PCIT’s invalid revision order solely on the ground that the assessee failed to appear during revision proceedings.

  • Outcome: The ITAT order was set aside and decided in favor of the assessee.

Key Takeaways

  • Inquiry vs. Lack of Inquiry: Section 263 cannot be invoked merely because the PCIT disagrees with the AO’s conclusion, provided the AO raised specific queries and examined the evidence on record.

  • Burden on PCIT: To hold an assessment order erroneous, the PCIT must conduct an independent enquiry or show how the AO’s view was legally unsustainable, rather than issuing a summary revision order.

  • Non-Appearance Not Fatal: An assessee’s failure to respond during Section 263 proceedings does not automatically validate an otherwise illegal or unwarranted exercise of revisionary jurisdiction.

HIGH COURT OF BOMBAY
Mirum Digital (P.) Ltd.
v.
Principal Commissioner of Income-tax
G. S. KULKARNI and Aarti Sathe, JJ.
IT APPEAL NO. 286 OF 2024
JUNE  19, 2026
Hiten Thakkar, Jasmin Amalsadvala and Nishant Thakkar, Advs. for the Appellant. Akhileshwar Sharma for the Respondent.
JUDGMENT
Aarti Sathe, J.- 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 Principal 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 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.
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 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-a-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 24th February 2022, the PCIT issued a notice under Section 263 of the Act proposing to revise the assessment order dated 23rd 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 27th 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 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 23rd 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 made

In 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 Account

 

Revenue Type Sales as per Books of Account Reimbursement of Expenses* Net Turnover to be recognised as per Accounting Standard-6
Total Sales as per Books 38,55,79,235 17,26,89.469 21,28,89,766

 

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 v. 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 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 ITR 375 (DELHI) , upheld by the Supreme Court in Malabar Industrial Co. Ltd. v. Commissioner of Income-tax  (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 Incometax 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  (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 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 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 v. Pr. CIT 386 ITR 162 (Cal) which has been affirmed by the Hon’ble Supreme Court in the case of Daniel Merchants Private Limited v. 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 27th 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, 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 address of theperson to whom commission etc paid Name and address of the sales party with respect to which commission etc paid Sales amount Percentage of Commission Commission (Gross) TDS Commission (Net) Nature of Services

 

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 the party Section under which TDS was made Income Credited during the year as per 26AS TDS made as per 26AS Income as per ITR TDS claimed in ITR Difference if any Reasons for mismatch

 

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 perBooks 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 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 v. 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.

• 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]  (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 Incometax 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  (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 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 v. Pr. CIT 386 ITR 162 (Cal) which has been affirmed by the Hon’ble Supreme Court in the case of Daniel Merchants Private Limited v. 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 v. Ballarpur industries Ltd. [2017]   (Bombay) relevant on this issue and ITAT Chennai Bench in the case of Sify Software Ltd. v/s ACIT  (Chennai – Trib.) also followed the case of Ballarpur Industries Ltd. (supra).

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 29 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 21st 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 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 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 24th 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 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.”
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 29th 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 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 CIT v. Gabriel India Ltd. 1989 176 ITR 349 (Bombay) 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 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 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.
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 quasijudicial 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 Pr. CIT Central v. Prabhu Poly Pipes Ltd. 481 ITR 506 (SC) 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 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 CIT v. Chandan Magraj Parmar 445 ITR 674 (Bombay) the 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 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 v. Ballarpur Industries Ltd. [2017]   (Bombay) and Sify Software Ltd. v. Asstt. CIT (Chennai – Trib.) 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 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 12th 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.