The invocation of section 263 requires demonstrable error and prejudice to Revenue; failure to conduct proper inquiries does not validate a revision.

ORDER

PER MAKARAND V.MAHADEOKAR, AM:

This appeal is preferred by the assessee against the order passed under section 263 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) by the Principal Commissioner of Income Tax-3, Ahmedabad [hereinafter referred to as “PCIT”] dated 22.02.2024 for the Assessment Year 2018–19, wherein the learned PCIT set aside the assessment order passed under section 143(3) of the Act dated 30.04.2021 by the Assessing Officer and directed de novo assessment, holding the said order to be erroneous in so far as it is prejudicial to the interest of the Revenue.

Facts of the Case

2. The assessee, M/s. Olympic Décor LLP (formerly Sara Suppliers LLP), filed its return of income for A.Y. 2018–19, which was selected for scrutiny. The assessment was completed under section 143(3) vide order dated 30.04.2021 by the ITO, Ward 3(1)(1), Ahmedabad. During the course of assessment, the Assessing Officer examined the financials and submissions furnished by the assessee and accepted the returned income after making inquiries on certain issues.

3. Subsequently, the PCIT exercised jurisdiction under section 263 of the Act on the basis that the assessment order passed by the AO was erroneous in so far as it is prejudicial to the interest of Revenue on multiple grounds. Show cause notice under section 263 was issued, pointing out various issues, including:

i. Allowance of depreciation on goodwill allegedly created upon amalgamation of a subsidiary,

ii. Allowance of deduction under section 80IA,

iii. Non-taxation of alleged unexplained credit of Rs. 10.80 crore under section 68 r.w.s. 115BBE in respect of loan from Crown Laminates Pvt. Ltd.,

iv. Carry forward and set-off of unabsorbed depreciation on such goodwill and Acceptance of set-off of losses of Rs.11,18,52,160/- without proper verification,

4. After going through the detailed reply of the assessee, in the detailed revisionary order dated 22.02.2024, the PCIT recorded that the AO had failed to examine the claim of depreciation on goodwill under section 32(1)(ii), though it had been disallowed in earlier years (A.Y. 2016–17) and was claimed again in the year under consideration despite the matter being sub judice. The PCIT also recorded that the AO had allowed set-off of unabsorbed depreciation without verifying the availability of carry forward and its allowability under section 32(2). The PCIT further recorded that the claim under section 80IA was allowed without reconciling the difference between depreciation claimed under books and income-tax and without verification. The PCIT concluded that the AO failed to apply the provisions of section 68 in respect of loan transaction of Rs. 10.80 crore with Crown Laminates Pvt. Ltd., which was treated as business income under section 28 instead of unexplained cash credit under section 68 r.w.s. 115BBE and no inquiry was made regarding the availability and allowability of loss set-off of Rs.11.18 crore.

5. Holding that the assessment order was passed without conducting proper inquiries and verification as warranted, and thereby resulting in loss of revenue, the learned PCIT invoked Explanation 2 to section 263 and set aside the assessment order with a direction to the AO to conduct de novo proceedings on the above issues.

6. Aggrieved by the order passed by the PCIT, the assessee has raised the following grounds before us:

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. The Ld. P