The court affirmed that an assessment order can be revised under section 263 if it is found to be erroneous and prejudicial to the interests of revenue due to non-application of statutory verification requirements.

आदेश/ORDER

PER MAKARAND V. MAHADEOKAR, AM:

This appeal is filed by the assessee against the order passed by the Principal Commissioner of Income Tax, Vadodara-1 [hereinafter referred to as “PCIT”], dated 29.02.2024, under section 263 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] for the Assessment Year (AY) 2018–19, setting aside the assessment order dated 12.04.2021 passed by National e-Assessment Centre, Delhi (Assessing Officer) [hereinafter referred to as “AO”] under section 143(3) r.w.s. 143(3A) and 143(3B) of the Act.

Facts of the Case:

2. The assessee is engaged in the business of manufacturing steel and steel metal casting and forging. The assessee filed its return of income for the A.Y. 2018–19 on 20.09.2018 declaring total income of Rs.3,29,04,740/-. The return was selected for scrutiny under CASS, and assessment was completed under section 143(3) r.w.s. 143(3A) and 143(3B) of the Act on 12.04.2021 by the AO, accepting the returned income without any modification.

3. During the assessment proceedings, the assessee claimed deduction under section 35(2AB) of the Act of Rs.1,03,82,195/- on account of in-house research and development expenditure. The said claim was allowed by the AO after calling for details through notices under section 142(1) of the Act and examining the submissions of the assessee.

3.1. Subsequently, the Ld. PCIT invoked jurisdiction under section 263 of the Act and issued show-cause notice to the assessee stating that the order passed by the AO was erroneous and prejudicial to the interest of the revenue, as the deduction under section 35(2AB) of the Act was allowed without verifying whether the assessee submitted Form 3CL from the prescribed authority and at the rate of 200%, whereas the applicable rate as per the amended provision was 150% from 01.04.2018.

4. After considering the reply of the assessee, the Ld. PCIT held that the AO failed to examine the statutory conditions for allowing deduction under section 35(2AB) of the Act and allowed excess deduction without verifying Form 3CL. The PCIT, accordingly, set aside the assessment order with a direction to the AO to pass a fresh order de novo.

5. Aggrieved by the order of the PCIT, the assessee is in appeal before us raising following grounds of appeal:

1. The Ld. PCIT has grossly erred in law and on facts in assuming jurisdiction u/s.263 of the Act on the erroneous ground that the impugned assessment order is erroneous in so far as it is prejudicial to the interest of the revenue.

2. Ld. PCIT has grossly erred in not appreciating that in order to invoke s.263, two conditions must be fulfilled viz. the impugned assessment order must be erroneous and that error must be prejudicial to the interest of the revenue. In the present case, ld. AO has passed the reasoned assessment order after analyzing all details and therefore there was no error in the impugned assessment order so as to justify action u/s.263 of the Act. Under the circumstances, the very assumption of power u/s.263 of the Act is unjustified and bad in law and therefore, order u/s.263 of the Act deserved to be quashed.

3. The subject order u/s. 263 passed by the Ld. PCIT is illegal and bad in law in absence of any finding of Ld. PCIT how the alleged error of AO has resulted in loss of revenue particularly when deduction u/s. 35(2AB) of the Act has rightly been claimed.

4. The Ld. PCIT has further erred in law and on facts in not appreciating that the view taken by the AO is a possible view and hence the proceedings are illegal and bad in law.

5. The ld. PCIT has further erred in law in not coming to any concrete conclusion and without conducting any inquiry or investigating t