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Judgment
PER KRINWANT SAHAY AM
Appeal in this case has been filed by the assessee against the order dated 30.03.2025 passed by the Ld. PCIT, Delhi-15 u/s.263 of the Act for the A.Y. 2020-21. Grounds of appeal are as under :-
“1.That in the facts and circumstances of the case the learned Pr. CIT has erred in law and facts of the case by starting proceedings under section 263 based upon the audit objection.
2.That on the facts and circumstances of the case as well as law on the subject the learned Pr. CIT has erred in passing the order us 263, although the assessment order passed u/s 143(3) of the Income Tax Act, 1961 was neither erroneous nor prejudicial to the interest of the revenue.
3.That on the facts and circumstances of the case as well as on the law on the subject, the learned Pr. CIT has erred in setting aside the order passed u/s 143(3) with a direction to the Assessing Officer as per para No. 9 of the revision order to pass fresh assessment order after taking into consideration, the issues as may be considered together with the issued discussed in order.
4.It is therefore prayed that above order passed by the Pr. CIT u/s 263 may please be quashed or modified as your honours deem it proper.
5.The Appellant craves leave to add, alter or delete any grounds(s) either before or in the course of hearing of the appeal.”
During proceedings before us the Ld. Counsel of the assessee has filed a copy of approval for remedial action- Audit memo CIT(Audit), on the basis of which the AO put up to the Principle CIT through Addl. CIT Range-43 for passing order u/s.263 of the IT Act. A copy of the same reproduced as under :-
The Ld. Counsel also submitted he had obtained these documents through RTI
AR Applicant applicant, Manoj Agarwal, Authorised Signatory10.01.2026 whichM/s received filed under information u/s registered 6(1) Right following information basis of requisitioned by the provide office, by the requisition letter. objection i.e. party Internal of related advance unverified. Proposal remedial u/s 10.02.2025 alongwith proposal, Audit Objection. (notesheet А.) required When requisition of record forwarded PCIT? Please provide of forwarding letter. applicable Please also provide of the order sheet confirming requisition and forwarding of therecord, if any. of. Accordingly, RTI application of applicant disposed appeal against In the applicant is not satisfied with the above order, he may file viz. Addl./Joint this order, if he desires, before the appellate authority the RTI Block, Dr. S.P. Mukherjee Commissioner of Income Tax, Range- 43, Room No.- 1704, E-2 order. Marg, Civic Centre, New Delhi-110002 within 30 days ofthe receipt of this Central Public Information Officer, Cir. 43(1), New Delhi Citle-43(1) सायकरअयुक्त, वृत्त (1) सुधीर वास आयु वृत (1), ई-2 ब्लॉक
Sub : Approval for remedial action - Audit Memo GIT(Audit), Delhi/2/2024/25/ITG IAP-15 Audit, Delhi/10377 in the case of M/s Shree Ah(aney Traders LLP, PAN ADBP554850 for the A.Y. 2020-21-reg-
Kindly refer to the above-mentioned subject.
2.The audit objection raised by Internal Audit Party is reproduced as under:-
"The assessing officer did not issued notice u/s 133(6) of the Act to the following parties, who are appearing in the Audit Report submitted by the assessee:-
1. No Name of the Issuer 133(6) Issued Amount Invoiced 1 BANIPAKAM EDUCATION NO 20000000 2 RECOM POWER & INFRA LTD NO 20000000 3 RABHUMANSH AGRO FARM LTD NO 45000000 4 RITA CHAUKASIA NO 38500000 5 SHIVGHATA MEHNDIPUR BALAJI BETEL NUT LLP NO 23049840 6 SUSHARASHI LLP NO 1000000 It is quite evident that the only four entities have given part replies to the Notices issued u/s 133(6) of the Act, the assessee has however sub-moto furnished copies of his own bank account(s). In spite of suggestions of the Review Unit for verification of financials, ITR and bank statement of the tenders, the assessing officer did not ask for the above details and made reiring enquiries only. It is also the Assessing Officer did not issue Notices u/s 133(6) of the Act to the entities with whom financial transactions of huge amounts were made by the assessee. Under these circumstances, it is quite evident that the three limbs of the provisions of Section 68 of the Act viz the identity, creditworthiness and genuineness of the transactions i.e. accepting unsecured loans by the assessee to the tune of Rs. 4,59,00,000/- made with one of the entities viz Raghuvansh Agro Farms Limited (PAN AABCP3407N) finds its place in the List of Shell Companies, which is in the public domain as well.
It is noted from the case history of the assessment proceedings, on 26.09.2022, the assessing officer submitted as under:-
"In view of the review report opportunity is provided to the assessee, requisition u/s 133(6) were also issued. On examination of the replies uploaded, it is seen that no variation is required for ILDP".
On 26.09.2022, the draft assessment order accepting the returned income of the assessee, submitted by the assessing officer to the Range Head, who approved the same on 26.09.2022 itself. The said matter duly approved by NFAC and consequently, the final assessment order was passed on 27.09.2022.
3.In this connection, it is submitted that the case was selected for security through CASS for limited scrutiny to verify the following issues:-
Sub : Approval for remedial action - Audit Memo CIT(Audit), Delhi-2/2024-75/ITO IAP -15 Audit, Delhi/10377 in the case of M/s Shree Anjaney Traders LLP, PAN ADGF55485G for the A.Y. 2020-21- reg-
Kindly refer to the above-mentioned subject.
2.The audit objection raised by Internal Audit Party is reproduced as under:-
"The assessing officer did not issued notice u/s 133(6) of the Act to the following parties, who are appearing in the Audit Report submitted by the assessee:-
S. No. Name of the Lender 133(6) Issued Amount Invoiced 1 KANIPAKAM EDUCATION NO 30000000 2 NECOM POWER & INFRA LTD NO 25000000 3 RAGHUVANSH AGRO FARMS LTD NO 45500000 4 RIYA CHAURAEIA NO 28500000 5 SHIN GHATA MENNDIPUR BALAJI BETEL NUT LLP NO 23000000 6 SUBHARASHI LLP NO 1000000 रक्षा sunit
It is quite evident that the only four entities have given part replies to the Notices issued u/s 133(6) of the Act, the assessee has however suo-moto furnished copies of his own bank account(s). In spite of suggestions of the Review Unit for verification of financials, ITR and bank statement of the lenders, the assessing officer did not ask for the above details and made raving enquiries only. It is also the Assessing Officer did not issue Notices u/s 133(6) of the Act to the entities with whom financial transactions of huge amounts were made by the assessee. Under these circumstances, it is quite evident that the three limbs of the provisions of Section 68 of the Act viz the identity, creditworthiness and genuineness of the transactions i.e. accepting unsecured loans by the assessee to the tune of Rs. 4,59,00,000/- made with one of the entities viz Raghuvansh Agro Farms Limited (PAN AABCR8407N) finds its place in the List of Shell Companies, which is in the public domain as well.
It is noted from the case history of the assessment proceedings, on 26.09.2022, the assessing officer submitted as under:-
"In view of the review report opportunity is provided to the assessee, requisition u/s 133(6) were also issued. On examination of the replies uploaded, it is seen that no variation is required for ILDP".
On 26.09.2022, the draft assessment order accepting the returned income of the assessee, submitted by the assessing officer to the Range Head, who approved the same on 26.09.2022 itself. The said matter duly approved by NFAC and consequently, the final assessment order was passed on 27.09.2022.
3.In this connection, it is submitted that the case was selected for security through CASS for limited scrutiny to verify the following issues:-
Although the appellant has taken many grounds of appeal but the main jurisdiction/ legal issue on which the Ld. Counsel argued vehemently was that u/s.263 of the Act revisional powers of the Pr. CIT cannot be exercised on the basis of proposal from the AO or an audit objection. The Ld. Counsel has also filed brief synopsis which is reproduced as under :
BEFORE THE HON'BLE INCOME TAX APPELLATE TRIBUNAL, BENCH 'E' AT NEW DELHI
SHREE ANJANEY TRADERS ITA 3432/DEL/2025 A.Y. 2020-21
Brief written submission on Jurisdictional Invalidity of Proceedings under Section 263; Audit Objection, Being Specifically Recognised as "Information" under Explanation 1 to Section 148, Could Not Have Been Acted Upon through Revisionary Jurisdiction so as to Bypass the Statutory Safeguards of Sections 147, 148, 148A, 149 and 151
Preliminary submission on jurisdiction
1.At the outset, it is respectfully submitted that the very foundation of the impugned proceedings under Section 263 is an audit objection raised after the completion of scrutiny assessment under Section 143(3). The assumption of revisional jurisdiction on the basis of such audit objection is contrary to the legislative framework introduced by the Finance Act, 2021 and further strengthened by the Finance Act, 2022, and is otherwise unsustainable on the settled principles governing the exercise of power under Section 263. The grounds are elaborated below and are urged cumulatively as well as independently.
Parliament has consciously identified "any audit objection" as a statutory trigger for reassessment
2.The reassessment provisions were comprehensively substituted with effect from 1 April 2021. Simultaneously, Parliament introduced Explanation 1 to Section 148 defining the expression "information which suggests that the income chargeable to tax has escaped assessment." Initially, the provision referred only to a final objection raised by the Comptroller and Auditor General of India. By the Finance Act, 2022, Parliament consciously widened the statutory expression by deleting the restrictive reference to the Comptroller and Auditor General and substituting it with the expression "any audit objection" to the effect that the assessment has not been made in accordance with the provisions of the Act.
3.The amendment is neither incidental nor merely clarificatory. It is a conscious legislative expansion whereby Parliament recognised every audit objection as a statutory source of information capable of initiating reassessment. Once Parliament itself has identified audit objections as jurisdictional information under Section 148, the statutory consequence necessarily follows that the remedial course prescribed by the Act is the reassessment mechanism contained in Sections 147, 148, 148A, 149 and 151.
The Act prescribes the complete and exclusive procedure for dealing with audit objections
4.Parliament has not merely recognised audit objections; it has prescribed the complete statutory machinery through which such objections are to be examined. Before any reassessment can be initiated, the Assessing Officer must examine the information, conduct such enquiry as is permissible, provide an opportunity of hearing under Section 148A(b), consider the assessee's explanation, pass a reasoned order under Section 148A(d), obtain the approval contemplated under Section 151, and thereafter issue notice under Section 148 subject to the limitation prescribed under Section 149.
These procedural safeguards were consciously incorporated while replacing the earlier reassessment regime. They are substantive safeguards intended to prevent arbitrary reopening of completed assessments and to ensure compliance with the principles of natural justice. Once the statute specifically provides that an audit objection constitutes "information" for the purposes of reassessment, the Department cannot avoid these safeguards by invoking another provision which does not require compliance with the conditions expressly enacted for acting upon audit objections.
Resort to Section 263 defeats the legislative intent behind the Finance Act, 2022
The substitution of "final objection raised by the Comptroller and Auditor General of India" with the far wider "any audit objection" cannot be treated as surplusage. Every amendment is presumed to have been enacted for a definite legislative purpose and must receive a meaningful interpretation. If, notwithstanding this deliberate expansion, the Revenue were permitted to ignore the reassessment provisions and invoke Section 263 upon the very same audit objection, the amendment would be rendered largely redundant. Courts have consistently held that statutory provisions must be interpreted so as to give effect to every amendment and to avoid rendering any part of the statute otiose or nugatory.
The special statutory mechanism overrides the general revisional power
Section 263 is a general supervisory provision empowering the Principal Commissioner to revise an order considered erroneous and prejudicial to the interests of the Revenue. Explanation 1 to Section 148 is a specific provision dealing with one identified class of information, namely audit objections. It is settled that a special provision prevails over a general one (generalia specialibus non derogant). Where Parliament has specifically legislated the manner in which audit objections are to be acted upon, the Department cannot disregard that special statutory code and instead invoke the broader revisional jurisdiction. To accept such a course would permit a general power to override a subsequently enacted and more specific framework, frustrating the legislative scheme.
The Department cannot bypass mandatory jurisdictional safeguards
The post-2021 reassessment regime incorporates multiple jurisdictional safeguards consciously introduced to protect completed assessments from arbitrary interference: information suggesting escapement, prior enquiry where necessary, opportunity of hearing, a speaking order, prior approval of the specified authority, and the limitation under Section 149. By invoking Section 263 on the very same audit objection, the Department effectively avoids each of these safeguards and achieves indirectly what Parliament has directed be undertaken only through the reassessment procedure. A statutory safeguard cannot be rendered illusory by permitting the Department to adopt an alternate route whenever it finds the prescribed mechanism inconvenient.
What the statute requires to be done in a particular manner must be done only in that manner
Where the Legislature prescribes a particular manner in which a power is to be exercised, that power must be exercised only in that manner, and all other methods necessarily stand excluded. This principle, recognised in Nazir Ahmad v. King Emperor and affirmed by the Supreme Court in State of Uttar Pradesh v. Singhara Singh and Chandra Kishore Jha v. Mahavir Prasad, applies squarely. Once Parliament has prescribed that audit objections constitute statutory information under Explanation 1 to Section 148 and has simultaneously enacted the procedure governing such information, the Department is bound to follow that route and cannot circumvent the legislative mandate through Section 263.
Section 263 cannot be exercised on the Assessing Officer's proposal or an audit objection; it must reflect the Commissioner's own satisfaction
Independently of the statutory scheme above, the impugned order is unsustainable because the revisional jurisdiction under Section 263 can be assumed only upon the independent satisfaction of the Principal Commissioner, formed on his own examination of the record, that the order is erroneous insofar as it is prejudicial to the interests of the Revenue. It is well settled that this satisfaction must be that of the revisional authority himself and cannot be a borrowed satisfaction imported from the proposal of the Assessing Officer, from an internal audit party, or from a revenue audit objection.
In the present case, the record demonstrates that the exercise of jurisdiction was not founded on any independent application of mind by the Principal Commissioner, but was actionable from and traceable to the audit objection / proposal emanating from the Assessing Officer's record. Where the foundation of a Section 263 proceeding is the opinion of the audit party or the Assessing Officer rather than the Commissioner's own examination, the jurisdictional precondition of the statute remains unfulfilled. The requirement that the order be "erroneous" in the opinion of the Commissioner is a jurisdictional fact; it cannot be satisfied by mechanically adopting the view of another authority. An audit objection may, at highest, be a point of information; it cannot substitute for the Commissioner's own conclusion that the twin conditions of Section 263 stand attracted.
It is therefore submitted that the impugned proceedings suffer from a fundamental jurisdictional infirmity: the satisfaction recorded is not the Commissioner's own, but a borrowed one derived from the audit objection actionable on the record. On this ground alone, the assumption of jurisdiction is vitiated.
Application to the present case
The assessment was completed after detailed scrutiny under Section 143(3). Thereafter, an audit objection was raised alleging that the assessment was not made in accordance with the provisions of the Act. Such objection squarely falls within Explanation 1(ii) to Section 148 as substituted by the Finance Act, 2022. If the Revenue intended to act upon it, the only legally recognised course was to invoke the reassessment provisions under Sections 147, 148, 148A,
Per contra the Ld. DR relied on the order of the Ld. PCIT.
We have heard the arguments of both the sides and we find that this issue is squarely covered by the many orders passed by the coordinate Benches of the ITAT and Hon’ble High Courts. An order of Pune Bench in ITA No. 1287/Pun/2017 is very much on this issue only. Relevant portion of that order is reproduced as under :-
“It can be seen from para 4 of the Id. CIT's order that: "A proposal for revision u/s 263 of the IT Act, 1961 was received from DCIT(IT)-1, Pune through the Jt.CIT(IT), Pune vide letter No. Pn/Jt.CIT(IT)/263/2016-17/61 dated 23.05.2016". It is thus manifest that the edifice of the revision in the extant case has been laid on the bedrock of receipt of the proposal from the AO. At this stage, it would be worthwhile to have a glance at sub-section (1) of section 263 of the Act, which runs as under:-"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 Assessing Officer is erroneous in so far 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 thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment an directing a fresh assessment.”
4.interests of revenue. Sub-section (1) of section 263 of the Act is an enabling provision which confers jurisdiction on the CIT to revise an assessment order which he considers erroneous and prejudicial to the The process of revision u/s 263 of the Act initiates only when the CIT calls for and examines the record of any proceeding under this Act and considers that any order passed by the AO is erroneous and prejudicial to the interests of the revenue. The twin conditions of (i) the CIT calling for and examining the record; succeeded by (ii) his considering the assessment order as erroneous etc. are sine qua non for the exercise of power under this section. The use of the word 'and' between the expression 'call for and examine the record and the expression 'if he considers that any order is erroneous...' abundantly demonstrates that both these conditions must be cumulatively fulfilled by the CIT and in the same order, that is, the first followed by the second. In other words, the kicking in point for invoking jurisdiction u/s 263 is calling for and examining the record of any proceedings under the Act by the CIT leading him to consider the assessment order erroneous etc. communication from the AO is not 'the record of any proceedings under this Act'. To put it simply, the consideration that the assessment order is erroneous and prejudicial to the interests of the revenue should flow from and be the consequence of his examination of the record of proceedings. If such a consideration is not preceded by the examination of record of the proceedings under the Act, the condition for revision does not get magnetized.
5.It is trite that a power which vests exclusively in one authority, can't be invoked or cause to be invoked by another, either directly or indirectly. Section 263 of the Act confers power on the CIT to revise an assessment order, subject to certain conditions. Instantly, we are confronted with a situation in which the revision was initiated on the basis of the AO sending a proposal to the CIT and not on the CIT suo motu calling for and examining the record of the assessment proceedings and thereafter considering the assessment order erroneous and prejudicial to the interests of the revenue. The AO recommending a revision to the CIT has no statutory sanction and is a course of action unknown to the law. If AO, after passing an assessment order, finds something amiss in it to the detriment of the Revenue, he has ample power to either reassess the earlier assessment in terms of section 147 or carry out rectification u/s 154 of the Act. He can't usurp the power of the CIT and recommend a revision. No overlapping of powers of the authorities under the Act can be permitted. As the revision proceedings in this case have triggered with the AO sending a proposal to the Id. CIT and then the latter passing the order u/s 263 of the Act on the basis of such a proposal, we hold that it became a case of jurisdiction deficit resulting into vitiating the impugned order. Without going into the merits of the case, we quash the impugned order on this legal issue itself.
Apart from this order there are many other orders which were produced by the Ld. Counsel of the assessee in which it has been clearly held that PCIT cannot invoke the revisionary jurisdiction u/s.263 of the IT Act, 1961 upon a proposal from the AO. Some of the cases cited by the Ld. Counsel are as under :-
Commissioner of Income-tax, [ (Central), Ludhiana v. Max India Ltd.2008] 166 Taxman 188 (SC)
ii) Principal Commissioner of Income-tax v. Delhi Airport Metro Express (P.) Ltd. [2018] 99 taxmann.com 382 (Delhi)
iii) Income-tax Officer v. D.G. Housing Projects Ltd. [2012] 20 taxmann.com 587 (Delhi)
iv) Director of Income-tax v. Jyoti Foundation [2013] 38 taxmann.com 180 (Delhi)
Commissioner of Income-tax v. Sunbeam Auto Ltd. [2010] 189 Taxman 436 (Delhi)
vi) Narayan Tatu Rane v. Income-tax Officer, Ward 27(1)(1), Mumbai [2016] 70 (Mumbai) taxmann.com 227
vii) Mumbai-1 SWD Industries v. PCIT (Central), ITA No. 9007/Mum/2025 & Ors
viii). Alka Agarwal Commissioner of Income Tax (Central) Delhi-3 Principal ITA No. 3369/Del/2025
ix) Alankit Associates Pvt. Ltd. v. Principal Commissioner of Income Tax (Central), Delhi-3 ITA No. 2051/Del/2024
We have heard the arguments of Ld. Counsel of the assessee as well as that of Ld. DR. We have also gone through the submissions and various case laws filed by the Ld. Counsel. We are of this considered view that sub section 1 of section 263 of the IT Act confers the jurisdiction on the Principle CIT to revise an assessment order which in his considered opinion is erroneous as well as pre judicial to the interest of the revenue. In fact the initiation of process for revision u/s.263 of the IT Act is to be initiated by the Principle CIT only. He is supposed to call for the record and after examination of the record of any proceeding under the Act and in case he is of the opinion that an order passed by an AO is erroneous and pre judicial to the interest of the revenue he can pass an order u/s.263 of the Act for the revision of the order. Here it becomes important to see the personal satisfaction and on the basis of personal satisfaction the initiation of proceeding by recalling the file or record by the PCIT. The Act never pre suppose initiation of proceeding under section 263 of the Act on the basis of any proposal either by the AO or by the JCIT/ Addl. CIT. Since the personal satisfaction of the Principle CIT regarding an order being an erroneous and prejudicial to the interest of the revenue is necessary and pre-requisite, therefore, any proceedings u/s.263 of the Act cannot be initiated on the basis of an audit objection also when the satisfaction of the audit party becomes pre dominant.
In this case the PCIT has passed an order u/s.263 of the Act for the revision of the order based on a note initiated by the AO that was based on an audit objection and it was sent through the Addl. CIT of the range.
In our considered view this process is totally against the spirit of the Section 263 of the IT Act. Therefore, in our considered view the revision order passed by the Ld.PCIT in this case cannot sustained. Accordingly, it is quashed.
In the result, the appeal filed by the assessee on this issue is allowed.