Revision under Section 263 upheld for unexamined ECB interest

Revision under Section 263 upheld for unexamined ECB interest capitalization but set aside on plausible views and roving TDS inquiries.

Issue

Whether PCIT properly exercised revisionary power under Section 263 regarding capitalization of ECB interest where the Assessing Officer (AO) conducted no inquiry into the actual utilization of borrowed funds.
Whether PCIT’s direction to verify TDS compliance on interest paid to government/statutory authorities constituted an impermissible fishing or roving inquiry.
Whether PCIT can set aside an assessment under Section 263 on claims of miscellaneous expenses and non-resident service provider charges when the AO had already examined the issue, formed a plausible view, and dropped proposed additions.

Facts

ECB Interest Capitalization: The assessee claimed ECB interest as revenue expenditure, relying on a board resolution stating working capital needs. However, the assessee failed to demonstrate actual utilization for working capital, and the AO conducted no inquiry during initial assessment.
TDS on Statutory/Government Interest: The assessee paid interest to statutory/government authorities (comprising late payment interest, MSMED interest, Customs/Service Tax interest, etc.). The PCIT ordered verification of a differential amount without identifying a specific legal or factual error in the assessment.
Miscellaneous Expenses: The AO initially proposed a disallowance under Section 37(1) but withdrew the addition after reviewing the assessee’s detailed submissions and explanations.
Service Provider Charges (Section 195 / Section 9): The assessee paid charges to foreign group entities protected by DTAA “make available” clauses. The AO issued a show-cause notice, examined agreements and invoices, and held that payments were not taxable in India as FTS, dropping the TDS disallowance proposal.

Decision

In favor of Revenue (ECB Interest): Upheld. The lack of inquiry by the AO on fund utilization made the assessment order erroneous and prejudicial to the revenue; revision under Section 263 on this specific point was valid.
Partly in favor of Assessee (TDS Verification): Modified. Direction to verify TDS on payments to statutory/government bodies amounted to a roving/fishing inquiry without a established error, and was ordered to be deleted.
In favor of Assessee (Miscellaneous Expenses): Allowed. The AO formed a plausible view after due examination; PCIT cannot invoke Section 263 merely to substitute another view.
In favor of Assessee (Service Provider Charges / FTS): Allowed. The AO took a categorical, plausible view after examining treaty benefits (“make available” clause); section 263 cannot be used to disturb such findings.

Key Takeaways

Lack of Inquiry Triggers Revision: Complete absence of inquiry by the AO on a material issue with significant revenue implications justifies exercise of jurisdiction under Section 263.
Board Resolutions Are Inadequate Proof of Fund Application: Stating loan objectives in a resolution does not automatically prove actual utilization for revenue vs. capital purposes.
Roving Inquiries Are Impermissible: Section 263 cannot be invoked to launch a fresh verification or fishing expedition without pointing out a clear, concrete error in the assessment order.
Plausible View Doctrine: Where the AO conducts an inquiry, considers responses, and takes a legally permissible or plausible view, the PCIT cannot set aside the order simply to substitute their own opinion.

IN THE ITAT MUMBAI BENCH ‘F’

Solvay Specialities India (P.) Ltd.

Principal Commissioner of Income-tax

Sandeep Gosain, Judicial Member
and ARUN KHODPIA, Accountant Member

IT Appeal No. 3550 (Mum.) of 2025
[Assessment year 2018-19]

AUGUST 10, 2026

Dhanesh Bafna, Hardik Nirmal and Ms. Hinal Shah for the Appellant. Annavaram Kosuri, Sr. DR. for the Respondent.

ORDER

Arun Khodpia, Accountant Member. – The captioned appeal is filed by the assessee, against the revisionary order passed by the Principal Commissioner of Income-tax, Mumbai-8 (in short, “Ld. PCIT”) under Section 263 of the Income Tax Act, 1961 (in short, “the Act”), dated 3rd March 2025, for the Assessment Year (AY)2018-19, out of order under Section 143(3) r.w.s. 144C(13) r.w.s. 144B of the Act, dated 27.7.2022, passed by Assessment Unit, Income-tax Department (in short, “Ld. AO”). The grounds of appeal are as under:

“Ground No.1

1.1

On the facts and in the circumstances of the case and in law, Hon’ble Principal Commissioner of Income Tax, (‘the PCTT”), Mumbai-8, Circle 16(2) Mumbai erred in assuming jurisdiction and invoking the provisions of section 263 of the Income-tax Act, 1961 (the Act’) and revising the assessment order dated 27 July 2022 passed by the National Faceless Assessment Centre (‘NaFAC’) Delhi/Learned Assessing Officer (‘AO’) under section 143(3) read with section 144C(3) of the Act without appreciating that the said assessment order is neither erroneous nor prejudicial to the interests of revenue.

1.2

While doing so, PCIT failed to appreciate, inter alia that:

(a)

the show-cause notice under section 263 of the Act issued by the PCIT did not refer to Explanation 2 to section 263 of the Act and thus, the invocation of the same in order is not tenable in law;

(b)

the AO passed its order under section 143(3) of the Act after making due inquiries;

(c)

where two views are possible, and the AO has adopted one of the plausible views then revision proceedings ought not be resorted to;

(d)

Twin conditions are to be satisfied i.e. viz. orders is erroneous and prejudicial to the interest of revenue;

(e)

The assessment order passed under section 143(3) read with section 144C(13) of the Act was based on the directions issued by Dispute Resolution Panel (‘DRP), a collegium comprising three Commissioners or PCIT;

The Appellant prays that the order dated 03 March 2025 passed by the PCIT under section 263 of the Act (hereinafter referred to as “the impugned order”) to be treated as invalid and to be quashed.

Ground No.2

Without Prejudice to Ground No.1, on the facts and in the circumstances of the case and in law, PCTT erred in directing the AO holding/observing that the AO had not inquired/verified the interest expenses amounting to INR 2,01,05,674 with respect to borrowings and thus, the same ought to be capitalized.

The Appellant prays that the impugned order of the PCTT be quashed, and order of the AO be sustained.

Ground No.3

Without Prejudice to Ground No.1, on the facts and in the circumstances of the case and in law, PCIT erred in setting aside the action of the AO and thereby, directing the AO to make necessary enquiries and verification of the interest expenses for an amount of INR 82,66,943 for non-deduction of tax.

The Appellant prays that the impugned order of the PCIT be quashed, and order of the AO be sustained.

Ground No.4

Without Prejudice to Ground No.1, on the facts and in the circumstances of the case and in law, the PCIT erred in setting aside the action of the AO and thereby making an addition /disallowance of miscellaneous expense amounting to INR 2,30,57,711 under section 37(1) of the Act.

The Appellant prays that the impugned order of the PCIT be quashed, and order of the AO be sustained.

Ground No.5

Without Prejudice to Ground No.1, on the facts and in the circumstances of the case and in law, PCIT erred in making disallowance in respect of service charges paid to the non-residents amounting to INR 71,45,41,614 on the premise that no tax has been deducted at source and accordingly, they ought to be disallowed under section 40(a)(i) of the Act.

The Appellant prays that the impugned order of the PCIT be quashed, and order of the AO be sustained.”

2. In this case the assessment under Section 143(3) read with Section 144C(13) of the Act was passed on 27/7/2022, assessing the total income of the assessee at Rs. 32,33,34,523/- as against declared income of NIL. In the impugned assessment the AO had made certain additions:

•

disallowance under Section 40(a)(ia) for Rs. 75,05,502/-

•

disallowance under Section 40(a)(i) for Rs. 31,35,384/-

•

disallowance under Section 92CA of Rs. 31,26,93,637/

3. Subsequently, the Ld. PCIT observed that during the year under consideration the assessee has shown total External Commercial Borrowings (ECB) of Rs.90,00,00,000/- from related parties and short-term borrowings of Rs. 2,25,07,000/-. Ld. PCIT noted from the profit and loss account of the assessee that the assessee had paid interest expense of Rs. 9,28,63,353/-, which was claimed as revenue expense and the same was accepted and allowed by the assessing officer.Further, from the assessee’s Form 3CEB (Clause 12), it is found by the ld. PCIT that the assessee had purchased fixed assets from subsidiary company, i.e. Solvay S.A. Belgium, amounting to Rs. 26,81,02,423. The same was put to use and depreciation was claimed on the said asset. There were major additions in fixed assets under the head Plant and machinery. It was further observed that for the purchase of assets borrowed funds (loan) were utilized, hence the interest expenses claimed by the assessee were of enduring nature, required to be capitalized. It was the inference that in this regard the omission has resulted in underassessment of income for Rs. 2,01,05,674/- for the relevant assessment year.

4. The second issue raised by the Principal Commissioner (IT) was that the assessee has shown total external commercial borrowings of Rs. 90 crores from related parties and short-term borrowings of Rs. 2,25,07,000/-. The interest paid and claimed in the P&L account for Rs.9,28,63,353/-, which includes interest payment of Rs. 8,45,96,000/- to the subsidiary company. However, the TDS on interest u/s 194A was deducted only on Rs. 1,41,09,863/- as per form 3CEB (clause -14). The tax auditor of the assessee has also noted this point in the tax audit report, clause 34a, and has disallowed the amount of Rs. 2,73,92,276/- in view of nondeduction of TDS under Section 40(a)(i) of the Act. Thus, it is evident that there was a short deduction of TDS for Rs. 4,30,93,861/- (Rs. 8,45,96,000 – 1,41,09,863 -2,73,92,276). Accordingly, Ld PCIT was of the opinion that an amount of Rs. 4,30,93,861/- remained escaped to be considered for TDS, so required to be disallowed under Section 40(a)(i) of the Act.

5. The third issue, pertains to information regarding miscellaneous expenses incurred and claimed, which was furnished by the assessee on a sample basis before the AO in original assessment. PCIT observes that the expenses for which the assessee has not provided any details need to be added back to the income of the assessee to the extent of Rs. 2,30,57,711/-. It is observed that the expenses accepted by the ld. AO cannot be treated as business expenses of the assessee and therefore required to be disallowed under Section 37(1) of the Act.

6. Further, it is observed by the Ld. PCIT, that assessee had debited and claimed service provider charge to the extent of Rs. 98,96,81,961/-, out of which Rs. 91,58,06,951/- were paid to subsidiary companies, which were covered under DTAA. It is further brought on records that an amount of Rs. 20,12,65,337/- was only considered for TDS under Section 195 of the ACT from the above amount, therefore, there was an apparent violation of the provisions of Section 195 for the remaining amount of Rs. 71,45,41,614/-, which the AO had over looked in the original assessment.

7. With the aforesaid observations, ld. PCIT was of the view that the impugned assessment order dated 27/7/2022 was erroneous within the meaning of Section 263 of the Income-tax Act, 1961.

8. In response to the aforesaid issues raised by the learned PCIT in the notice issued under section 263 of the Act, the assessee filed a detailed response, contending that the issues sought to be revised had been duly examined and enquired into by the learned Assessing Officer during the course of the assessment proceedings. It was submitted that, upon considering the relevant material and explanations furnished by the assessee, the learned Assessing Officer thereafter passed the assessment order. Accordingly, it was contended that the assessment order could neither be regarded as erroneous nor as prejudicial to the interests of the Revenue, so as to warrant assumption of revisional jurisdiction under section 263 of the Act.

9. The Ld. PCIT was not convinced with the submissions of the assessee therefore, had directed the AO to revise the assessment on the following issues:

Issue	Amount	Principal observation recorded
Interest on borrowed funds	Rs. 2,01,05,674	Loan utilised for acquisition of capital assets; expenditure treated as capital-related
Difference in interest/TDS is	Rs. 82,66,943	Requires enquiry regarding whether TDS was required
Miscellaneous expenses	Rs. 2,30,57,711	Details/genuineness of transactions considered insufficiently substantiated
Service-provider charges	Rs. 71,45,41,614	TDS compliance on payments to overseas entities questioned

10. The assessee being aggrieved with the decision of Ld. PCIT had filed thepresent appeal.

11. Before us the Ld. Counsel of the assessee had argued on the issues at length, had furnished various prepositions and had summarized the argument under the following written submissions:

“A. Interest expenditure of INR 2,01,05,674 is of capital in nature and needs to be capitalized and the Assessing Officer may verify interest payment on to the government authorities amounting to INR 82,66,943 on which TDS was not deducted:

3.1. On perusal of the notice issued by the Ld. PCIT has principally alleged that the Appellant has used its external commercial borrowings (‘ECB’) to acquire capital assets and consequently, the interest expense after allowing depreciation to the extent of INR 2,01,05,674/- is enduring benefit in capital in nature, hence, required to be capitalized instead of allowing revenue expenses.

3.2 In this regard, the Appellant humbly submits that the allegation of the Lal. PCIT is factually incorrect as the ECB borrowings were utilized by the Appellant for general corporate purposes to meet the day-to-day working capital requirements of the Appellant. The said fact was duly brought out and highlighted by the Appellant in its response to notice under section 26g of the Act issued by the Ld. PCIT at Para 3-27 to Para 3.29 of its response dated ta February 2025. The same is also coming out from Ld. PCIT order at Page No.26 of Appeal Memorandum (internal page 16 of PCIT’s order).

3.3 Infact, the Appellant would like to submit before Your Honours that the Assessing officer in course of assessment proceedings has inquired into the transaction of the interest expenditure by issuing the notice under section 142(1) of the Act and in response to which the Appellant has also filed its submissions which were duly taken on record by the Assessing Officer.

3-4 The Appellant submits that interest expenditure sought to be questioned by the Ld. PCIT has two components viz. interest on external commercial borrowings (“ECB”) of INR 845.86 lakhs and other interest of INR 82.77 lakhs. Both the expenditure was duly inquired and examined by the Assessing Officer and the said fact can be gathered from the details filed before the Assessing Officer. To demonstrate its bona fide, the Appellant would like to draw Your Honours’ attention to the details filed with lower authorities and which was available with the Ld. PCTT (as it was forming part of records) and in addition, was filed with the Ld. PCIT.

Interest on External Commercial Borrowings:

3-5-The Appellant draws Your Honours’ attention to Note 18 of the Audited Financial Statements (relevant Page No.83 of ITAT paperbook) which deals with ‘Borrowings-non current within which there is a further note appended which reads as The above loan taken for general corporate purposes, carries an interest rate of 9.25% and is payable during the year ending 31 March 2022. For ease of reference, the relevant extract of the audited financial statements are produced herein:

3.6. To further substantiate its contention that the ECB borrowing was for the purpose of meeting working capital requirements (i.e. general corporate purposes) and not for the purpose of purchase of fixed assets as alleged by the Ld. PCIT (which is factually incorrect), the Appellant would like to draw Your Honours’ attention to the board resolution filed before the Assessing Officer stating the ECB loan is taken from meeting general corporate business needs of the Company and the same is at Page 173 of ITAT Paperbook. For ease of reference, the relevant extract of the resolution is produced hereunder:

3.7. During the course of its proceedings before the Ld. PCIT vide its submissions dated 12 February 2025 (forming part of ITAT Paperbook at Page 5 onwards), it was categoric submission before the Ld. PCIT that ECB loan is taken for general corporate business purpose i.e. to meet the day to day working capital needs and the same was corroborated with relevant ECB documents filed with regulatory authorities to support its contention. The said fact is evident from Para 3.27 to Para 3.29 of its submissions. The same can also be gathered from the Ld. PCIT’s order at Page 19 of the Appeal Memorandum (internal Page 9 of the PCIT’s order).

3.8. Thus, on perusal to the above, it can be squarely gathered that the ECB loan was taken for purchase of meeting working capital needs of the Company and not for purchase of fixed capital as alleged by the Ld. PCIT. The action of the Ld. PCIT is based on presumption or surmises directing the Assessing Officer make inquiry and pass fresh order, thus, insinuate fishing or roving enquiries.

3.9. With regard to Ld. PCIT’s attention on purchase of fixed assets, the Appellant submitted (on a without prejudice basis) that the Appellant has sufficient own funds and to justify the same, relevant extract of cash flow was also provided. Basis which it was contended that since the Appellant has sufficient own funds, it is presumed that the investments are out of own funds and various decisions of the Hon’ble Supreme Court and High Court were cited to support its contention.

3.10. Now, to challenge the jurisdiction of the Lal. PCIT in invoking the jurisdiction of revision proceedings under section 263 of the Act, the Appellant submits as under:

3.10.1. In course of assessment proceedings, the Assessing officer called for the details of loans and advances taken by the Appellant in prescribed format along with documentary evidence by issuing notice under section 142(1) of the Act. to which, the Appellant vide its reply dated 27 April 2021 submitted its response.

3.10.2. Attention in this regard is drawn to the notice dated 09 April 2021 wherein vide Point No.12. the Assessing Officer has called for details of loans and advances and vide point No. 13 has called for details of interest expenditure incurred by the Appellant;

NOTE: In its notice, the Assessing Officer also specifies the amount of interest expenditure of INR 9.28 lakhs which it seeks to examine (for the same amount, the Ld. PCIT also seeks to invoke revision jurisdiction)

3.10.3. In response to the same, the Appellant vide its letter dated 27 April 2021 (relevant Page 160 of ITAT Paperbook) submitted the details of the loan taken and interest expenditure incurred in the prescribed format vide Annexures 10-11 and Annexure 12 respectively and the same is at Paperbook Page No.172-174 respectively.

3.10.4. For ease of reference, the details of loan taken along with interest paid and TDS deducted is produced hereunder:

3.10.5. Details of interest expenditure incurred, along with deductibility of TDS, in the prescribed format as filed before the Assessing officer are annexed at Page No.174 of ITAT Paperbook. For ease of reference, the relevant extract of annexure is produced hereunder:

Note: The amount of other interest on which it is written as NA is INR 82.77 lakhs (INR928.33 lakhs less INR 845.96 lakhs), TDS is not deducted as the same is paid to governmental authorities and by virtue of section 194A(3) r.w.s. section 196 of the Act, the same is not deductible.

Interest paid to governmental authorities:

3.11. On perusal of the interest schedule given at Para 3.10 above, Your Honours’ will appreciate that interest paid (except to Solvay) are all interest paid to governmental authorities for instance interest on service tax or custom duties. Further, the Appellant submits that as demonstrated above (in Para 3.10), the said expenditure was examined by the Assessing officer in course of assessment proceedings and thus, the question of non-inquiry does not arise.

3.12. With regard to allowability of interest paid to governmental authorities for non-deduction of TDS, the Appellant submits that by virtue of the provisions of section 196 of the Act, the Appellant was not required to deduct TDS and accordingly, the Appellant in its submission has categorically written that TDS is not applicable. For ease of reference, the relevant extract of section is produced hereunder:

“Interest or dividend or other sums payable to Government, Reserve Bank or certain corporations

196. Notwithstanding anything contained in the foregoing provisions of this Chapter, no deduction of tax shall be made by any person from any sums payable to-

(i) the Government, or

where such sum is payable to it by way of interest or dividend in respect of any securities or shares owned by it or in which it has full beneficial interest, or any other income accruing or arising to it.”

3.13 On perusal of the above, it is clear that no withholding tax implications arises with respect to interest paid to governmental authorities. Thus, the Appellant fails to understand how the assessment order is erroneous or prejudicial to the interest of the revenue when the same is in line with the provisions ofthe Act. The Lal. PCIT has not brought out any material or fact or contention to demonstrate that the said expenditure warrants further inquiry or verification. In absence of the same invoking revision proceedings is contrary to the settled judicial precedents that the Ld. PCTT has to demonstrate how the twin conditions are satisfied viz. erroneous and prejudicial to the interest of the revenue.

Proposition 1: Twin conditions under section 263 of the Act is to be satisfied:

3.14 . In order to invoke provisions of section 263 of the Act, twin conditions are to be satisfied, namely, (1) the order of the Assessing Officer sought to be revised is erroneous; and (if) it is prejudicial to the interests of the revenue. If either of the condition is absent, the provisions of section 263 of the Act cannot be invoked. Reliance in this regard is placed to the decision of the Hon’ble Supreme Court rendered in case of Malabar Industrial Co. Ltd. v. CIT ((2000) 243 ITR 83 (SC)] wherein it was held as under:

“6. A bare reading of this provision makes it clear that the pre-requisite to exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interests of the revenue. The Commissioner has to be satisfied with twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue. If one of them is absent-if the order of the ITO is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenuerecourse cannot be had to section 263(1).”

(Emphasis supplied)

3-15. Reliance is also placed on following judicial precedents:

CIT v. Gabriel India Ltd ((1993) 203 ITR 108 (Bombay HC)] (Para 10 and 13)

Gigabyte Technology (India) (P.) Ltd. v. CIT (Bombay HC)] -(Para 39)

3.16. In the instant case, as demonstrated above, the Assessing Officer has examined and inquired into each of the issue and accordingly, allowed the claims of the Appellant. The Ld. PCIT has not brought any material or record to demonstrate that the inquiry which was required to be made was not carried out thereby making the assessment order erroneous or prejudicial to the interests of the revenue.

Accordingly, it is prayed that the action of the Ld. PCIT be set aside and the action of the Assessing Officer be sustained.

Proposition 2: Appellant has no control over the way the order is drafted:

3.17. With regard to both the interest expenditure, Your Honours will appreciate that in course of assessment proceedings, the Assessing Officer has examined the issue and applied its mind to the issue and thus, cannot be said that the Assessing Officer has not examined/inquired the issue.

3.18. In this regard, the Appellant submits that in its humble view, an adjudication would only be on such issue where the Appellant’s submissions are not acceptable to the Assessing Officer, then the occasion to decide a lis would arise i.e. adjudication. However, where queries have been raised during the assessment proceedings and the Appellant has responded to the same, then the non-discussion of thesame or nonrejection of the response of the Appellant, would necessarily mean that the Assessing Officer has considered the submission and accepted the view of the Appellant. To support its contention, the Appellant would like to draw Your Honours’ attention to the decision of the Hon’ble Supreme Court in case of PCIT v. V-Con Integrated Solutions (P.) Ltd [(2025) 476 ITR 586] (tendered in course of hearing) wherein the Hon’ble Court held as under:

3. The assessee does not have control over the pen of the Assessing Officer. Once the Assessing Officer carries out the investigation but does not make any addition, it can be taken that he accepts the plea and stand of the assessee.”

3.19 Similar view has also been propounded by the Hon’ble Jurisdictional High Court in case of CIT Chandan Magraj Parmar ((2022) wherein the Hon’ble Court in context of section 263 held as under:

7. The ITAT has given a finding that the claim of capital gain was accepted by AO after necessary inquiry and the order under section 143(3) of the Act was passed. It is true that the AO has not passed any written detailed order while accepting the explanation of capital gains of Respondent but the fact is AO had raised queries and Respondent has given detailed reply means the AO has passed this order after making necessary inquiries. We agree with the view of the ITAT that the order of the AO cannot be branded erroneous merely because the order does not contain the details which Principal Commissioner feels should have been included. The Principal Commissioner cannot decide how elaborate an order of the AO should be. Where the AO, during the scrutiny assessment proceedings, has raised a query which was answered by the Assessee to the satisfaction of the AO but the same was reflected in the AO by him, the Commissioner cannot conclude that no proper inquiry with respect to the issue was made by the AOand enable him to assume jurisdiction under section 263 of the Act.”

(Emphasis supplied)

3.20. Reliance is also placed on following judicial precedents:

CIT v. Honda Siel Power Products Ltd ((2011) 333 ITR 547 (Delhi HC)] Hari Iron Trading Co. v. CIT [(2003) 263 ITR 437 (Punjab & Haryana HC)]

In view of the above, the Appellant submits that once a query is raised in course of assessment proceedings and was satisfactorily answered and does not get reflected in assessment order would not lead to conclusion that there was no enquiry or application of mind by the Assessing Officer as the Appellant has no control way the order is drafted and accordingly, the Appellant submits that the action of the Ld. PCIT is not sustainable and thus, to be set-aside.

B. Details of Miscellaneous Expenditure:

3.21. On perusal of the notice under section 263 of the Act, Your Honours’ would note that the Ld. PCIT has stated that an analysis of the miscellaneous expenses reveals that they include expenses for which assessee had not provided any details. Accordingly, miscellaneous expenses to the extent of Rs.2,30,57,711/- were proposed not to be considered as business expenses and the same were required to be disallowed under section 37 of the Act.

3.22. At the outset, the Appellant would like to submit that notice does not provide the breakup of expenditure which the Ld. PCIT seeks to deny. Nonetheless, the Appellant made its submissions that details of miscellaneous expenditure were examined by the Assessing Officer and the said addition wasspecifically dropped and the same can be duly gathered from the assessment order passed under section 143(3) of the Act by the Assessing Officer. The same is discussed in detail in ensuing paragraphs.

3.23 On perusal of the Ld. PCIT’s order, Your Honour would appreciate that said break-up of expenditure is produced at Para 12 of the Ld. PCIT’s order. For ease of reference, the same is reproduced hereunder:

Sl. No.	Name of Expenses	Amount of Rs.	Remarks
1.	GST on Sample Sales	30,70,933	GST taken as cost on providing of samples of our products to customers in the normal course of business
2.	Old Grir Write Off	90,88,676	Old debtor/creditor balances written off
3.	Various Customer	57,20,269	Cost of Free Samples provided to Customer
4.	Various Employees	61,77,833	Reimbursement of expenses

3.24. On perusal of Para 12.1 of the Ld. PCIT’s order, the Ld. PCIT seeks to deny the claim of the Appellant by inter alia holding that assessee giving details of Miscellaneous expenses, it is observed that the assessee has not provided the important details ie., PAN, Address and amount of TDS deducted for the transactions made with the above entities whereas the same details have been provided by the assessee for the other entities and thus, the assessee has not provided any substantial details for the transactions made with above entities and accordingly, should not be considered as business expense under section 37(1) of the Act.

3-25-The Appellant submits that only premise, the Ld. PCIT seeks to deny the claim is on following:

Not providing details like PAN, address and TDS deducted and

Not providing substantial details

3.26. In response to the allegations made by the Ld. PCIT, the Appellant submits that the Assessing Officer has made due inquiries and examination of details and the same can be gathered as under:

3.26.1. At the outset, the Appellant submits that in course of assessment proceedings, the Assessing Officer had issued show-cause notice dated 15 September 2021 (Page 179 of ITAT Paperbook) wherein vide Para 5.2, the Assessing Officer had called for details of Miscellaneous expenditure incurred for an entire amount of INR 1506.04 lakhs.

3.26.2. In response to which the Appellant filed its detailed submissions vide its submission dated 18 September 2021 and vide particular heading ‘Details of Miscellaneous Expense’ amounting to INR 15,06,04,165′ (Relevant Page 191 of ITAT paperbook) wherein the Appellant has given following details of Miscellaneous expenditure:

Partywise details giving PAN, Address, nature of transaction, amount and TDS

Documentary evidences

Justification of allowability of miscellaneous expenditure wherein inter alia it was highlighted that the amount of expenditure is miniscule compared to revenue. Further,the Appellant has all the invoices/details available but due to voluminous data to upload, invoices were given on sample bases;

Also submitted all payments through banking channels and in course of business thus, allowable;

3.26.3. On perusal of the annexure of details of Miscellaneous expenditure annexure at Page 194 of the ITAT Puperbook, Your Honours will appreciate that the Appellant had provided details of PAN, nature of service and deduction of TDS details and thus, the allegation of the Ld. PCTT that the Appellant had not provided details of PAN and TDS details is factually incorrect. Thus, one of the fundamental premises of its allegations is fallacious.

3-26.4. With regard to tabulation of certain expenditures which are not examined, the Appellant submits that the said contention is also factually incorrect and the same can be demonstrated as under:

Post perusal of the details filed by the Appellant in relation to the miscellaneous expenditure, the Appellant was accorded to present its case in relation to virtual hearing, wherein the Assessing Officer called for explanation in relation to the GST on sample sales and commission expenses (forming part of miscellaneous expenses). In response to the same, the Appellant vide its submission dated 27 September 2021 (Page 319 of ITAT Puperbook) has submitted explanation of allowability of GST on sample sales amounting to INR 30,70,933 and the commission on export/import.

3.26.5. Another item forming part of the said tabulation is reimbursement of expenditure amounting to INR 61,77,833 in respect of which the Appellant submits that the said details were also provided to the Assessing Officer in course of assessment proceedings and the same can be gathered from Page No.205-209 of ITAT Paperbook. On perusal of the above, it would be amply clear that the Appellant has given details for the exact amount of reimbursement of expenditure.

Note: The aforesaid details were also made available to the Ld. PCIT in course of revision proceedings and the same can be gathered from the Para 3.44 of the Appellant’s submission filed in course of revision proceedings in response to revision notice and the same is also gathered from Page No.19 of PCIT’s order.

3.27 It would not be out of place to demonstrate here that the Assessing Officer in its assessment order passed under section 143(3) of the Act dated 27 July 2022 vide Para 8.2 categorically notes that show-cause notice was issued and in response to which the Appellant filed the requisite details and pursuant to which the Assessing Officer withdraws the proposed addition. For ease of reference, the relevant extract of the said findings of the Assessing Officer is produced hereunder:

8.2. In show cause notice dated 18.09.2021, expenditure claim of Rs. 15,06,04,165/- towards miscellaneous expenses was proposed to be disallowed u/s 37 of the Act as assessee did not provide the relevant details in response to notice dated 08.09.2021. In its reply dated 18.09.2021, 19.09.2021 and 20.09.2021, assessee made its submissions related to miscellaneous expenses. On perusal of the submission of assessee it is noted that.

(i)

Assessee provided break-up of the miscellaneous expenses including Name and PAN of the parties to whom miscellaneous expenses were paid, Nature of expense, and amount of payment made to each party. Miscellaneous expenses includes expenses related to Purchase of jute bags, supply of shirt pieces for driver’s uniform, facility services, Purchase of Branding material, Bank Charges, purchase of research and technical documentation. subscription fee etc.

(ii)

Assessee provided sample invoices, details of TDS deducted on such payments of miscellaneous expenses.

In view of above facts, the contention of the assessee against the proposed disallowance of Rs. 15,06,04,165/- towards miscellaneous expenses is accepted and proposed addition is withdrawn.

In view of the above, the Appellant humbly submits that the allegation of the 1.4. PCIT that the Assessing Officer has not examined the details of miscellaneous expenditure qua the issues tabulated by him is factually incorrect and fallacious and devoid of any merits and contrary to facts on record.

3.28. The Appellant submits that it is a settled principle of law that revision proceedings cannot be invoked by the Ld. PCTT to substitute his judgment with that of the view taken by the Assessing Officer without bringing out any prima facie material to demonstrate that the order was erroneous and prejudicial to the interests of revenue.

To support its contention, the Appellant would like to rely on the decision of the Hon’ble Jurisdictional High Court in case of CIT v. Gabriel India Ltd [(1993) 203 ITR 108 (Bombay HC)].

To elucidate the facts or issue before the Court was whether the revision proceedings are tenable with respect to the plant re-layout expenditure incurred by the Assessee claimed as revenue expenditure which was duly inquired and explained by the Assessee to Assessing officer. However, CIT was of the view that the said expenditure was capital expenditure and accordingly invoked revision proceedings. The Assessee challenged the Assessing Officer and the Hon’ble Court held as under:

“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 decisionis 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 suomotu 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.”

(Emphasis supplied)

3.29. Similar ruling is also pronounced by the Hon’ble Punjab & Haryana High Court in case of CIT v. Indo German Fabs [ITA No. 248 of 2012] wherein the Hon’ble Court held as under:

“A due consideration of submissions by counsel for the parties and perusal of the show cause notice, particularly the chart reproduced therein and order passed by the CIT and the ITAT in our considered opinion leave no ambiguity, that the CIT had no jurisdiction to exercise power under Section 263 of the Act and re-assess an already concluded assessment. Section 263 of the Act confers power to examine an assessment order so as to ascertain whether it is erroneous and prejudicial to the interest of the revenue but does not confer jurisdiction upon the CIT to substitute his opinion for the opinion of the Assessing Officer. The words prejudicial and erroneous have to be read in conjunction and therefore, it is not each and every error in an assessment that invites exercise of powers under Section 263 of the Act, but only orders that are erroneous and prejudicial to the interest of the revenue.”

(Emphasis supplied)

3.30. Reliance is also placed on following judicial precedents:

CIT v. Ashish Rajpal [(2010) 320 ITR 674 (Delhi HC)] (Para 14 & 15)

CIT v. Arvind Jewellers ((2003) 259 ITR 502 (Gujarat HC)]

Samit Ashok Soniminde v. ITO [ITA No. 2763 of 2024 (Mumbai Tribunal) (Para 9)

M/s. N.J.Eco-Build Pvt. Ltd. v. PCIT [ITA No. 221 of 2019 (Surat Tribunal)]

In view of the above, the Appellant submits that the provisions of section 263 of the Act ought not to be invoked by the PCIT to substitute its view without pointing out any error in the action of the Assessing Officer without bringing prima facie any material on record.

C Service Charges amounting to INR 9158.06 lakhs:

3.31 On perusal of Para 13 of the Lat. PCIT’s order, the Lat. PCTT seeks to deny the claim of the Appellatit by inter alia holding that assessee has not provided details for certain portion of expenses and the nature of services rendered relates to making available technical knowledge and thus, qualifies for Fees for Technical Services under Double Taxation Avoidance Agreement (TAA)

3-32 In response to the allegations made by the Ld. PCTT, the Appellant submits that the Assesing Officer has made due inquiries and examination of details and the same can be gathered as under:

3-32-1. At the outset, the Appellant submits vide Point No. 5 of its notice dated 09 April 2021, the Assessing Officer had called for details in relation to service charges along with documentary evidences in the prescribed format. In response to which the Appellant vide its letter dated 27 April 2021 vide Para 2 provided details (Refer Page No.160 of ITAT paperbook) and the relevant annexure is at Page 162 wherein it is submitted that where with respect to various parties and its nature of payments, TDS was not deducted by virtue of DVTAA provisions and cases where TDS was deducted. Copies of sample copies of invoices were attached to said annexure.

3.32.2. Subsequently, the Appellant submits that the Assessing Officer had issued showcause notice dated 15 September 2021 (Page 179 of ITAT Paperbook) wherein vide Para 5-3, the Assessing Officer had called for details of service charges incurred for an entire amount of INR 9158.06 lakhs.

3.32.3. In response to which the Appellant filed its detailed submissions vide its submission dated 18 September 2021 and vide titular heading ‘Details of service charges amounting to INR 9158.06 lakhs (Relevant Page 192 of ITAT paperbook) wherein the Appellant has given following details of service charges:

A detailed note on services availed from each parties; (at Page 278 of ITAT Puperbook)

Copy of contract agreements (at Page 210 of ITAT Paperbook)

amount of reimbursement;

Copies of invoice on sample basis; (at Page 163 of ITAT Paperbook)

Note on justification of non-applicability of TDS party wise (at Page 278 of ITATPaperbook)

Note: The aforesaid details were also made available to the Ld. PCIT in course of revision proceedings and the same can be gathered from the Para 3.54 of the Appellant’s submission filed in course of revision proceedings in response to revision notice and the same is also gathered from Page No.19 of PCIT’s order.

It would not be out of place to demonstrate here that the Assessing Officer in its assessment order passed under section 143(3) of the Act dated 27 July 2022 vide Para 8.3 categorically notes that show-cause notice was issued and in response to which the Appellant filed the requisite details and pursuant to which the Assessing Officer has dropped the addition by holding that it is not FTS under the DTAA. Forease of reference, the relevant extract of the said findings of the Assessing Officer (relevant Para 8.3, the relevant extract is at internal Page 11-12, Appeal Memorandum Page 5556) is produced hereunder:

Assessee has provided the copy of invoices, Bank statement reflecting payments to above parties, and copy of service agreements signed with above parties.

such services in future without assistance of service provider. In the instant case, it is noted that assessee has been paying for these service in previous years too and assessee is dependent on the service provider for every time to use the services hence it is not FTS as per DTAA provisions and not taxable in India. Therefore, TDS was not deducted on payments to above parties.

334. noted that TDS On perusal of the above, Your Honours’ would appreciate that the Assessing Officer has categorically not required to be deducted with respect to service charges payments as the Appellant does not satisfy the ‘make available clause’ and the treaty provisions are more beneficial to the Appellant.

3-35-No w, the Ld. PCIT is of the view that the said service charges qualify as Fees for technical services and thus, TDS ought to have been deducted. Thus, it is apparent that the Ld. PCIT is trying to substitute its view for that of the Assessing Officer and the same is not permissible as brought out in Para 3.26 above.

3.36. Further, the Appellant submits that where two views exist and the Assessing Officer has taken one of the plausible view then revision proceedings with respect to the said issue then revision proceedings are bad-in-law. Reliance in this regard is placed to the decision of the Hon’ble Supreme Court in case of Malabar Industrial Co. Ltd. v. CIT [(2009) 243 ITR 83] in connection with two views, the Hon’ble Supreme Court held as under:

“9. The phrase ‘prejudicial to the interests of the revenue’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law…………………….”

3.37. Attention is also drawn to the decision of the Hon’ble Jurisdictional High Court in case of CIT v. Gabriel India Ltd. (supra) wherein it is held as under:

From a reading of sub-section a of section 26g, it it 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 enquires 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

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 suomotu 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.”

In view of the above, the Appellant humbly submits that the action of Ld. PCIT in substituting his view in lieu of the Assessing Officer in absence of any material or documents then exercise of jurisdiction of revision proceedings is bad-in-law.

In addition to the above, to challenge the revision proceedings, the Appellant also relies on the following propositions:

Proposition 3: Distinction between ‘lack of inquiry’ and ‘inadequate inquiry’:

3.38. The Appellant submits as demonstrated above, in the instant case, the Assessing Officer has inquired and called for all necessary details and the same can be seen from the host of documents, submissions filed by the Appellant. Thus, it cannot be said to be a case of no inquiry or inadequate inquiry.

3.39. Assuming without accepting, at the worst, the Appellant’s case may at best be termed as a case of “inadequate inquiry. It is settled principle of law that any inquiry, even inadequate, could not by itself give occasion to PCIT to exercise the revision jurisdiction under section 263 of the matter.

3-40. Reliance in this regard is placed on the following judicial precedents:

CIT v. Sunbeam Auto Ltd ((2011) 332 ITR 167 (Delhi HC) – (Para 12)

KKB Projects Pvt. Ltd. v. PCIT [ITA No. 222 of 2019 (Surat Tribunal)] – (Para 10 onwards)

Anushree Maheshwari v. PCIT [ITA No. 584 of 2024 (Surat Tribunal)) – (Para 5-4)

Proposition 4: Revision proceedings ought not to be resorted for fishing and roving inquiries:

3-41. In the instant case, with respect to all the issues, ie., interest expenses, miscellaneous expenses and service charges, it is evident that the Assessing Officer made specific inquiries, in response to which the Appellant furnished detailed and categorical submissions. These submissions were also made available to the Ld. PCIT during the course of the revision proceedings. This can further be gathered from the “Particulars of details submitted before the Assessing Officer and the Id. PCIT”, which is enclosed herewith as “Annexure A.”

3.42. Having satisfied with the said explanation/justification, the Assessing Officer chose not to make any addition (in relation to interest expenditure) and drop the addition by categorical finding in his assessment order (w.r.t to miscellaneous expenses and service charges) despite proposing the addition with respect to the same in show-cause notice. Thus, it can be seen that with respect to the said concluded issues, the Ld. PCIT is seeking to initiate the inquiry on the said concluded issues to which the Assessing officer has already applied his mind which can easily be gathered from ‘records.”

3.43. The Appellant submits that the question whether an assessment order is “erroneous in so far as it is prejudicial to the interests of the Revenue” must be determined on the basis of the material available on the record of the proceedings called for by the Ld. PCIT. If there is no material on record on the basis of which it can be said that the Ld. PCIT, acting reasonably, could have arrived at such a conclusion, the very initiation of revision proceedings is without jurisdiction.

3.44. It is an equally well-settled principle of law that the Ld. PCIT cannot initiate proceedings with a view to embarking upon fishing and roving enquiries in the matters or orders which have already finality. Such an action would run counter to the well-accepted policy of law that there must be a point offinality 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.

3-45-Reliance in this regard is drawn to the decision of the Hon’ble Jurisdictional High Court in case of Gabriel India Ltd (supra) wherein the Hon’ble Jurisdictional High Court held as under:

“……………… 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.”

(Emphasis supplied)

3-46. Attention is also drawn to the decision of the Hon’ble Jurisdictional Tribunal in case of Crisil Ltd. v. Addl. CIT [(2011) 142 TTJ 62 (Mumbai Tribunal)] wherein it was held that suspicions lurking in the mind of a CIT cannot be said to reasons good enough to exercise revision powers

To elucidate the facts were, Assessee therein had a unit registered under software technology park scheme which is granted approval for “development and export of computers oftware, information technology and enabled services. The Assessing officer took note of the fact that the nature of work carried out in 10A unit, the by observing that “as per the agreement, the assessee has to build a single database and to deliver the data into S&P transmission format” which requires” standardizing, organizing, normalizing according to the specifications and retransmitting the data to S&P in S&P’s structure finance surveillance system”. Accordingly, the Assessing Officer allowed deduction subject to minor adjustments. Subsequently, the CIT issued revision notice inter alia holding that the assessment order of the Assessing Officer was to be set aside to the extent of expenses incurred in foreign exchange and attributable to units for which section 10A claim is made to verify the nature of such expenses and to correlate such expenses with various units and then rework the export turnover and total turnover for computing deduction under section 10A.

On appeal, the relevant findings of the Tribunal are as under:

The question then arises whether not examining the foreign exchange expenses, from the point of view of their relevance in delivery of software outside India, would lead to the order being erroneous and prejudicial to the interest of the revenue. The claim of the assessee has been that the reimbursements have been made on actual basis, without any involvement of profit element, and even the Commissioner has not disputed the same. TheCommissioner’s grievance has been that even if there is a reimbursement element, without involvement of profit, still adjustments have to be made to the export turnover. In view of the undisputed reimbursement aspect, it is not really necessary to doubt that even other foreign exchange expenses must involve some expenses in connection with delivery of software. It is also important to note that the nature of services are not such that there has to essentially expenses on site or in delivery, as the services are being rendered in the Indian unit and the output is being merely transmitted to the S & P’s facility in USA. All these facts are not such that they call for, provoke or reasonably trigger further enquiry. Carrying out further probe into the nature of expenses, no matter how desirable, is not an essential corollary to the facts presented to the Assessing Officer. Learned Commissioner’s reliance on Hon’ble Supreme Court’s judgment in the cases of Smt. Tara Devi Aggarwal (supra) and Rampyari Devi Saraogi (supra) is of no avail. The only other issue raised by the Commissioner is that perhaps some of the expenses related to delivery of software have not been reduced from the amount of total turnover. This kind of tentative suspicions lurking in the mind of a CIT cannot be said to reasons good enough to exercise revision powers. As held by the Hon’ble Bombay High Court in the case of CIT u. Gabriel India Ltd. [1993] 203 ITR 108 in the garb of exercising powers undersection 263 “CIT cannot initiate proceedings with a view to start fishing and roving enquiries in matters or orders which are already concluded” and that “an order cannot be termed as erroneous unless it is not in accordance with the law”. As held by the Hon’ble Punjab & Haryana High Court, in the case of CIT v. R.K.Metal Works [1978] 112 ITR 445, the CIT must give reasons and basis for his conclusion that the order soughtto be revised is erroneous. There is no finding whatsoever as to how is it erroneous in law. As for the learned Departmental Representative’s suggestion that no harm is caused to the assessee because the matter is only being restored to the file for fresh adjudication in accordance with the law, we can do no better than to quote from Hon’ble Bombay High Court’s observation, in this very case, to the effect that, “Such action (of exercising revision powers) will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, stale issues should not be re-activated beyond a particular stage and the lapse of time must induce, repose in, and set at rest judicial and quasi-judicial controversies as it must in other spheres of activity”. The power of revision, therefore, cannot be made in a routine and mechanical manner. In any event, we have noted that a Co-ordinate Bench of the Tribunal, in the case of Siemens Information Systems Ltd. v. Addl. CIT 2010 TIOL ITAT MUM., has, on materially identical facts and by following Special Bench decision in the case of ITO v. Sak Soft Ltd. [2009] 30 SOT 55 (Chennai) has quashed the revision proceedings. Keeping in view all these discussions, as also bearing in mind entirety of the case, we deem it fit and proper to uphold the grievance of the assessee and quash the impugned revision order as devoid of jurisdiction. The assessee gets the relief, accordingly.

(Emphasis supplied)

3.47 Reliance is also placed on following judicial precedents wherein it is held that revision cannot be based on suspicions:

Arul Industries v. ACIT (Madras HC)) (Pura 18)

Chaitalee Sachin Deokar v. CIT (IT) [ITA No.2806 of 2024 (Mumbai Tribunal)) (Para 11)

Pawan Kumar v. ITO [(2022) 196 ITD 378 (Chandigarh Tribunal)]

In view of the above, the Appellant submits that action of the PCIT be set-aside as there would be no finality with respect to concluded proceedings.

Proposition 5: PCIT must record the lapse or failure on the part of the Assessing officer to justify further inquiry and remand:

3.48. In the instant case, as is evident from Para 15 of the PCIT’s order, PCIT has merely set-aside the matter to the file of the Assessing Officer to pass a fresh order in accordance with law after making necessary enquiries. However, the PCIT has failed to specify the nature of the enquiries to be undertaken or documents to be verified or looked into so as to demonstrate how the assessment order is erroneous and prejudice to the interest of the revenue on account of any alleged non-verification. Reliance in this regard is placed to decision of the Hon’ble Supreme Court in case of PCIT v. V-con integrated Solutions (P.) Ltd. [(2025) 476 ITR 526] wherein it is held as under:

2. In our opinion, the order passed by the High Court, which upheld the decision of the Tribunal, is correct on facts and in law. This case does not involve a failure by the assessing officer to conduct an investigation. Instead, according to the Revenue, it is a case where the assessing officer having made inquiries erred by not making additions.

4. In such cases, it would be wrong to say that the Revenue is remediless. The power under Section 263 of the Income Tax Act, 1961, can be exercised by the Commissioner of Income Tax, but by going into the merits and making an addition, and not by way of a remand, recording that there was failure to investigate. There is a distinction between the failure or absence of investigation and a wrong decision/conclusion. A wrong decision/conclusion can be corrected by the Commissioner of Income Tax with a decision on merits and by making an addition or disallowance.

5. There may be cases where the Assessing Officer undertakes a superficial and random investigation that may justify a remit, albeit the Commissioner of Income Tax must record the abject failure and lapse on the part of the Assessing Officer to establish both the error and the prejudice caused to the Revenue………………”

(Emphasis supplied)

Proposition 6: PCIT should point out the inquiry or verification required to be carried out was not done before invoking Explanation 2 to section 263 of the Act: 3-49. The Appellant submits that PCIT is to point out as to what inquiry or verification ought to have been carried out was not carried out and thus, the case falls within the ambit of Explanation a to section 263 of the Act. In this regard reliance is placed to the decision of Hon’ble Punjab & Haryana High Court in case of PCIT v. Kanin (India) [(2022) wherein it is held as under:

“11. The contention of Ld. Senior Standing Counsel that the order passed by the Assessing Officer will fall within the ambit of Explanation 2(a) appended to section 263 of the Act, cannot be accepted till it is pointed out as to which inquiry or verification was not made by the Assessing Officer before passing the order.

12. Ld. Counsel for the appellant is not in a position to point out as to what are those inquiries or verification which should have been made but have not been made by the Assessing Officer in the present case as to make the present case fall within Explanation 2 attached to section 263 of the Act.”

(Emphasis supplied)

3-50. Further, the Appellant submits that Explanation 2 to section 263 of the Act does not give unfettered powers to the PCIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. Reliance in this regard is placed on following judicial precedents:

Narayan Tatu Rane v. ITO (Mumbai Tribunal)] (Para 19 and 20)

DHL Global Forwarding Freight Shared Services (India) LLP v. PCIT [ITA No.2109 of 2025] (Para 7.5)

Secure Meters Ltd. v. PCIT [ITA No. 2 of 2021 (Jodhpur Tribunal) – (Para 20 onwards)

In view of the above, it is humbly submitted that it was incumbent upon the Ld. PCIT to point out what are the inquiries or verification which were warranted which should have been made but had not been made by the Assessing Officer so that the case fall within Explanation 2 attached to section 263 of the Act. The same being not demonstrated in the instant case and thus, invocation of Explanation 2 to section 263 is not tenable.

Without Prejudice to above,

Proposition In absence of inadequate inquiry, it was incumbent on PCTT to carry out some minimal inquiry

3.5 1. If the Ld. PCTT believed that Ld. AO has not made any enquiry, it was incumbent upon the Ld. PCIT to specify what kind of inquiry or verification which was required to be made and was not undertaken by the Ld. AO. In fact, the Ld. PCTT ought to himself have undertaken some prima facie inquiry to come to conclusion that the order passed by the Ld. AO is erroneous and prejudicial to interest of revenue by not carrying out the said inquiry. To support its contention, the Appellant relies on following judicial precedents:

Earth Minerals Co. Ltd. v. ACIT [ITA No. 223 of 2019 (Cuttack Tribunal) “12. An examination of the order passed u/s.263 of the Act, in the impugned appeal, shows that the Id. Pr.CTT has “not made or caused to be made such enquiry” before passing the order u/s.263 of the Act. A perusal of the order of the Id. Pr.CIT shows that in para 14, he starts his decision and it goes on to para 28 but other than discussing the facts that has led him to believe that the order passed by the AO was erroneous and prejudicial to the interest of revenue, there has been no enquiry by him nor he has caused any enquiry to be done before he has passed the order u/s.263 of the Act. This is not a case of inadequacy of enquiry. It is a case of absence of enquiry. On this ground alone, the order passed u/s.263 of the Act by the Id. Pr.CIT is liable to be annulled and we do so

(Emphasis supplied)

3-52. The aforesaid decision is affirmed by the Hon’ble Orissa High Court in case of PCTT v. Earth Minerals Co. Ltd. ((2024) )

Reliance in this regard is placed on the decision of the Hon’ble Delhi High Court rendered in case of PCIT v. Delhi Airport Metro Express (P.) Ltd [(2017) 398 ITR 8 (Delhi HC)] (Para 10)

3-53-“10. ……………..In fact, if the Principal Commissioner of Income-tax is of the view that the Assessing Officer did not undertake any inquiry, it becomes incumbent on the Principal Commissioner of Income-tax to conduct such inquiry. All that the Principal Commissioner of Income-tax has done in the impugned order is to refer to the circular of the Central Board of Direct Taxes and conclude that “in the case of the assessee-company, the Assessing Officer was duty-bound to calculate and allow depreciation on the BOT in conformity of the Central Board of Direct Taxes Circular No. 9 of 2014 but the Assessing Officer failed to do so. Therefore, the order of the Assessing Officer is erroneous insofar as prejudicial to the interests of the Revenue”.

(Emphasis supplied)

In view of the above, the Appellant humbly submits that the action of Ld. PCIT with respect to the aforesaid issue is untenable and uncalled for as the Ld. PCIT fails to conclude how the said issue is erroneous or prejudicial to the interest of revenue.

Conclusion and Prayer:

In view of the above, the action of the PCIT be set-aside and the assessment order passed by the Assessing Officer be restored.”

12. Ld. DR on the other hand vehemently supported the order of Ld PCIT.

13. Now we shall be taking the issues one by one considering the observationsof Ld. PCIT, submissions of Ld. Counsel of the assessee and the Ld. DR.

14. Interest expenditure of INR 2,01,05,674/- is of capital in nature and needs to be capitalized: on the aforesaid issue, the Ld. PCIT was of the opinion that the amounts of borrowed fund from the subsidiary company were utilized for purchase of fixed asset. On the contrary, the assessee submits that the assessee has taken the aforesaid loan for the purpose of working capital needs of the assessee-company to substantiate such contention. Copy of Board Resolution dated 10^th June, 2015 is also furnished in the submissions extracted (supra) wherein it is described that the company had approached promoter, shareholder for availing External Commercial Borrowings (ECB) to the extent of Rs.90 crores for a period of 7 years for meeting general business needs of the company. It was the submission that such details were furnished before the Ld. PCIT also vide submission dated 12^th February, 2025. Accordingly, the ECB loan was taken for the purpose of meeting working capital needs of company and not for the purpose of fixed capital as alleged by the Ld. PCIT. It is also submitted that the assessee has sufficient funds, to justify the same relevant extract of cash flow was provided.On this basis it was contended that since the assessee has sufficient own funds, it is presumed that the investments are out of own funds and various decisions of Hon’ble Supreme Court and High Courts were cited to support such contention.

15. We have considered the contentions raised by the Ld. AR of the assessee; however, we are not convinced with the same, since the application of funds could not be demonstrated before us to establish that the funds were utilised towards the working capital requirements of the assessee-company, mere reliance on the board resolution stating the purpose of loan, itself would not be enough to established the actual utilisation of the funds. Further mentioning for general business needs, does not restrict the assessee to use it only for revenue expenditure and not for capital assets. Moreover, as there was no enquiry by the Ld. AO on this aspect during the course of assessment proceedings, the finding of the Ld. PCIT, to this extent, cannot be regarded as erroneous. Accordingly, insofar as the issue relating to capitalisation of interest is concerned, we find substance in the finding of the Ld. PCIT in setting aside the issue to the file of the AO for fresh examination. We, therefore, uphold the same.

16. Coming to the issue of TDS on interest payments made to Government authorities, we find that the assessee had furnished the necessary details before the Ld. PCIT. The amounts in question comprised late-payment interest/penalty, BNP CC interest, interest on Customs Duty, interest on Service Tax, interest under the MSMED Act, and interest on e-form liability. Despite the details having been furnished, the Ld. PCIT set aside the issue to the file of the Ld. AO for verification.

17. In our considered view, such direction of the Ld. PCIT, to the extent it relates to the aforesaid payments, amounts to directing a further verification without pointing out any specific error in the assessment order. The direction, therefore, appears to be in the nature of a fishing or roving enquiry. Accordingly, having regard to the settled principles governing the exercise of revisional jurisdiction under section 263 of the Act, we are unable to concur with the decision of the Ld. PCIT on this aspect.

18. Accordingly, to the extent of the issue relating to non-deduction of TDS on interest payments made to Government authorities, we find substance in the submissions of the assessee. We, therefore, modify the order passed under section 263 of the Act to this extent and direct deletion of the direction issued to the Ld. AO to undertake verification regarding TDS on such payments.

19. On the issue of miscellaneous expenditure of Rs.2,30,57,711/-, the PCIT has decided that such expenditure does not pertain to the business of the assessee and therefore, cannot be allowed as business expenditure u/s 37(1) of the Act. On this issue, the Assessing Officer has given a categorical finding in para 8.2 of the assessment order, noted as under:

“8.2. In show cause notice dated 18.09.2021, expenditure claim of Rs. 15,06,04, 165/-towards miscellaneous expenses was proposed to be disallowed u/s 37 of the Act as assessee did not provide the relevant details in response to notice dated 08.09.2021. In its reply dated 18.09.2021, 19.09.2021 and 20.09.2021, assessee made its submissions related to miscellaneous expenses. On perusal of submission of assessee it is noted that perusal the

(i)

(ii)

Assessee provided sample invoices, details of TDS deducted on such payments of miscellaneous expenses.

In view of above facts, the contention of the assessee against the proposed disallowance of Rs. 15,06,04,165/- towards miscellaneous expenses is accepted and proposed addition is withdrawn.”

20. In terms of the aforesaid noting, the learned AO, after considering the submissions of the assessee, was satisfied with the explanation furnished and accepted the issue relating to miscellaneous expenditure in toto, thereby withdrawing the proposed addition. Thus, a final view had been taken by the learned AO after examining the issue during the course of assessment proceedings. Such a view, having been taken upon due examination of the matter, could not be disturbed by the learned PCIT at this stage merely by invoking the provisions of section 263 of the Act. Accordingly, the direction of the learned PCIT to the extent of requiring re-examination of the miscellaneous expenditure amounting to Rs. 2,30,57,711/- is modified and directed to be to be removed.

21. Coming to the issue regarding service provider charges amounting to Rs.71,45,41,614/- on which TDS was required to be deducted but was not deducted. It is submitted by the Ld. AR that the issue was discussed in the original assessment order and the Ld. AO has categorically made a note at para 8.3 which is as under:

“8.3. In show cause notice dated 18.09.2021, expenditure claim of Rs. 98,96,81,961/-towards Service provide charges was proposed to be disallowed u/s 40(a) (ia) of the Act as assessee did not provide the relevant details in response to notice dated 08.09.2021. In its reply dated 18.09.2021, 19.09.2021 and 20.09.2021, assessee made its submissions related to Service provide charges. As per submission of assessee, assessee has paid service provider charges to following parties:

Assessee has provided the copy of invoices, Bank statement reflecting payments to above parties, copy of service agreements signed with above parties and details of applicability of TDS and amount of TDS deducted. On perusal of the submission of assessee, it is noted that:

(i).

Assessee has availed services in the nature of Managerial, Technical and Consultancy Services from the following parties and TDS has been deducted on the payments:

Name of Party	Nature of services	Amount (Rs.)	TDS
Solvay (China) Co Ltd	Managerial, Technical and Consultancy Services	3,43,65,551/-	34,36,555/-
Solvay Specialty Polymers Italy, SPA ‘	Managerial, Technical and Consultancy Services	1,22,48,160/-	12,61,561/-
Other-Rhodia Specialty Chemicals	Managerial, Technical and Consultancy Services	4,87,893/-	48,790/-
Total		4,71,01,604/-

Assessee has provided the copy of invoices, Bank statement reflecting payments to above parties, copy of service agreements signed with above partjes and TDS at the rate of 10% is deducted on payments to above parties as per section 115A of the Act.

(ii)

Assessee submitted the detailed reasons which are placed on record in support of non-applicability of TDS deduction on payments made to following parties:

Name of Party	Nature of Services Availed
Solvay Specialty Chemicals Asia Pacific Pte. Ltd – Singapore	Managerial, Technical and Consultancy Services
Solvay SA	Managerial, Technical and Consultancy Services
Solvay Asia Pacific Company Limited -Thailand	Managerial, Technical and Consultancy Services
Solvay Specialty Polymers France, SAS	Managerial, Technical and Consultancy Services
Solvay Specialty Polymers USA, LLC	Managerial, Technical and Consultancy Services
Solvay Specialty Polymers Belgium SA	Managerial, Technical and Consultancy Services
Solvay Solutions UK Limited	Managerial, Technical and Consultancy Services
Solvay Inc USA	Managerial, Technical and Consultancy Services

Assessee has provided the copy of invoices, Bank statement reflecting payments to above parties, and copy of service agreements signed with above parties.

The services provided by above parties are covered u/s. 9(1)(vii) of the Income tax Act, 1961 as fees for technical services. The rate of TDS as per section 115A of the Act on these services is 10%. However, the relevant DTAA with the countries in which above parties are resident has “Make Available” clause and as per said clause it is important to examine whether assessee is able to usesuch services in future without assistance of service provider. In the “Instant case, it is noted that assessee has been paying for these service in previous years too and assessee is dependent on the service provider for every time to use the services hence it is not FTS as per DTAA provisions and not taxable in India. Therefore, TDS was not deducted on payments to above parties.”

22. On perusal of the aforesaid observations by the Ld. AO wherein the issue was decided in favour of the assessee, with categorical findings that TDS was not required to be deducted with respect to service charges taken as the assessee, which does not satisfy the make available clause, thus the treaty provisions are more beneficial to the assessee. In this context the Ld. AR relied on the decision of Hon’ble Apex Court in the case of Malabar Industrial Company Ltd. (supra) therefore, once the Ld. AO has taken a plausible view, the same cannot be disturbed by the PCIT by invoking the provisions of section 263. We accordingly, direct to modify the order of Ld. PCIT by removing the directions regarding disallowanceof the service provider charges amounting to Rs.71,45,41,614/- in account of non-deduction of TDS. Though on merits, we do not express any view qua the applicability of tax in terms of DTAA on the said transaction in absence of make available, as this is not the issue before us.

23. While proposing the aforesaid modifications/revisions to the order of the learned PCIT, we uphold the order of the learned PCIT to the extent of the issue relating to interest expenditure amounting to Rs. 2,01,05,674/-, which requires adjudication on merits, as no enquiry was conducted by the learned AO in respect of this issue during the course of assessment proceedings. The issue, therefore, requires due examination and deliberation. Accordingly, the learned PCIT was justified in directing the learned AO to examine the said issue afresh.

24. However, in respect of the other three issues, we have already recorded our findings in the foregoing paragraphs and held that the directions issued by the learned PCIT are not in accordance with the mandate, as per the provisions of section 263 of the Act. Accordingly, such directions cannot be sustained and the learned AO cannot be directed to re-examine or re-assess those issues pursuant to the impugned order passed under section 263 of the Act.

25. Apropos, the propositions pressed in by the Ld. AR, we observed as under:

Proposition 1: Twin conditions u/s 263 of the Actis to be satisfied;

ii.

Proposition 2: Appellant does not have control over the way the order is drafted;

iii.

Proposition 3: Distinction between ‘lack of inquiry’ and ‘inadequate inquiry’;

iv.

Proposition 4: Revision proceedings ought not to be resorted for fishing and roving inquiries;

Proposition 5: PCIT must record the lapse or failure on the part of the Assessing Officer to justify further inquiry and remand;

vi.

Proposition 6: PCIT should point out the inquiry or verification required to be carried out was not done before invoking Explanation 2 to Section 263 of the Act;

vii.

Proposition 7: In absence of inadequate inquiry, it was incumbent on PCIT to carry out some minimal inquiry.

26. We have carefully considered the aforesaid propositions advanced by the learned Counsel for the assessee and are of the considered view that, in respect of the issue relating to capitalization of interest expenditure, the matter warrants revision and re-adjudication by the learned AO, as the impugned assessment order satisfies the twin conditions prescribed under section 263 of the Act, namely, that it is erroneous insofar as it is prejudicial to the interests of the Revenue. Since no enquiry was conducted by the learned AO on this issue during the course of assessment proceedings, the contention that the assessee has no control over the manner in which the assessment order is drafted would not be applicable in the present case. The issue relating to capitalization of interest expenditure was neither examined nor enquired into by the learned AO, nor was any material or information in respect thereof furnished by the assessee during the course of assessment proceedings.

27. The distinction between “lack of enquiry” and “inadequate enquiry” is also not applicable in the present case, as no enquiry whatsoever was conducted by the learned AO on the issue. Since the issue has a substantial revenue implication and there was neither any finding recorded by the learned AO nor any enquiry conducted by him in this regard, the exercise of jurisdiction by the learned PCIT cannot be regarded as amounting to a fishing or roving enquiry. The learned PCIT has duly recorded the failure on the part of the learned AO and observed that, to the extent the borrowed funds were utilised for the purpose of acquisition of a capital asset, the corresponding interest expenditure was required to be capitalized. Accordingly, the issue was rightly considered by the learned PCIT for the purposes of revision under section 263 of the Act.

28. Propositions 6 and 7 are also duly considered in the order of Ld. PCIT therefore, we thus cannot find any infirmity in the order of Ld. PCIT qua the first issue regarding capitalization of interest.

29. in Backdrop of the aforesaid facts and circumstances and deliberations, we hold that on the first issue regarding interest expenditure to be capitalized, the order of Ld. PCIT succeeds. Whereas, on other three issues, the order of Ld. PCIT cannot survive on the propositions raised by the Ld. Counsel of assessee supported with case laws(supra), therefore, the order of Ld. PCIT is directed to be modified in above terms and the Ld. AO is directed to act accordingly.

30. In result, the appeal of assessee is partly allowed, in above terms.