The main legal point established in the judgment is the requirement for the AO to apply his mind to the explanation furnished by the assessee and to conduct a thorough inquiry before allowing the assessee to carry forward losses. The judgment also emphasizes the duty of the Commissioner to hold an inquiry to determine the veracity of the assessee's claims.

JUDGMENT

M. S. Sonak, J. - Heard Ms. Amira Razaq for the Appellant and Mr. Salil Kapoor who appears along with Ms. Priyanka Kamat for the Respondent.

2. This Appeal was admitted on 15.11.2016 on the following substantial questions of law:-

(I) Whether the learned Income Tax Appellate Tribunal (ITAT) is justified in law in allowing the appeal filed by the assessee when the twin conditions for invoking the power under Section 263 had been fully satisfied, there being failure on the part of Assessing Officer in not considering the issue of legality of expenses/expenditure allowable as deduction or whether there was at all any business income after investigating the facts ?

(II) Whether in facts and circumstances of the case tribunal was justified in law, in passing impugned order thereby holding that order passed by the Assessing Officer is not erroneous and prejudicial to the interest of the revenue and accordingly was justified to quash the order passed under Section 263 of the I.T. Act ?

3. The assessee filed return of income in the Assessment Year 2009- 10 declaring a total loss of Rs.1,78,57,950/-. The case was selected for scrutiny under CASS and accordingly, notices were issued to the assessee. The Assessing Officer (AO), vide assessment order dated 30.09.2011 added an amount of Rs.2,31,010/- by assessing the same as income from other sources to the total income of the assessee. However, the AO, accepted that the assessee had incurred total business income (losses) to the extent of Rs.1,78,57,950/-, which was eventually allowed to be carried forward for the next assessment year.

4. The Commissioner of Income Tax, invoked his revisional jurisdiction under Section 263 of the Income Tax Act, 1961 (said Act) and by his order dated 06.03.2014 set aside the aforesaid assessment order dated 30.09.2011 and directed the AO to pass a fresh order after granting the assessee reasonable opportunity of being heard. The Commissioner also directed the AO to verify the claim of the assessee in respect of the allowability of the expenditure and carry forward of the losses to the extent of Rs.1,78,57,950/- in terms of the law.

5. The assessee appealed to the Income Tax Appellate Tribunal (ITAT) which, by order dated 11.02.2015, set aside the CommissionerRs.s order dated 06.03.2014. Hence the present appeal by the respondent on the aforesaid substantial questions of law.

6. Ms. Razaq, the learned counsel for the respondent submitted that in this case the twin conditions of the AORs.s order being erroneous and prejudicial to the interest of the respondent were satisfied and therefore, there was no legal bar to the invocation of revisional jurisdiction by the Commissioner. She submits that the record very clearly disclosed that the assessee had neither carried out any business during the relevant assessment year nor had it charged any fees from its subsidiary for technical or management services allegedly rendered during the relevant assessment year. She submits that the AO himself pointed out the error in his order dated 30.09.2011 and the Commissioner, upon independent application of mind was also satisfied with the existence of such error. She points out that on account of the erroneous view of the AO, the assessee was incorrectly permitted to carry forward losses of Rs.1,78,57,950/- to the next assessment year and thereby avoid payment of tax to the extent of almost Rs.60,69,917/-. She submits that in this case an audit objection was raised and therefore, despite the tax effect being less than Rs.1 Crore, the respondent, was justified in pursuing the present appeal before this Court. She relied upon Malabar Industrial Co. Ltd. v. Commissioner of Income Tax, Kerala State, (2000) 243 ITR 83(SC) , Commissioner of Income Tax v. Amitabh Bachchan,2016 69 taxmann.com 170 (SC) and Daniel Merchants P. Ltd. & Anr. v. Income Tax Officer & Anr. - SLP (C) No.23976/2017, in support of her submissions.

7. Mr. Salil Kapoor, the learned counsel for the respondent s