(Tax Case No.47/2022) 2025:CGHC:26796-DB NAFR HIGH COURT OF CHHATTISGARH AT BILASPUR TAXC No. 47 of 2022 {Arising out of order dated 29-9-2021 passed by the Income Tax Appellate Tribunal, Raipur Bench, Raipur in ITA No.18/RPR/2021} Pr. Commissioner Of Income Tax-1, Central Revenue Building, Civil Lines, Raipur, District Raipur, Chhattisgarh ... Appellant versus M/s Vimla Infrastructure (India) Pvt. Ltd., 1st Floor, Mohsin Market, Gurunanak Chowk, M.G. Road, Raipur, District Raipur, Chhattisgarh ... Respondent For Appellant : Mr. Amit Chaudhari, Standing Counsel for the Income Tax Department and Mr. Ajay Kumrani, Advocate. For Respondent : Mr. Neelabh Dubey, Advocate through Video Conferencing and Mr. Jitendra Sahu, Advocate. Division Bench: - Hon'ble Shri Sanjay K. Agrawal and Hon'ble Shri Deepak Kumar Tiwari, JJ. Judgment on Board (23/06/2025) Sanjay K. Agrawal, J. 1.This tax appeal preferred under Section 260A of the Income Tax Act, 1961 (for short, ‘the IT SISTA SOMAYAJULU Digitally signed by SISTA SOMAYAJULU Date: 2025.06.25 11:37:48 +0530 (Tax Case No.47/2022) Act’) was admitted for hearing on 19-12-2022 by formulating the following substantial question of law: - “Whether the learned Tribunal was correct in holding in the attending facts and circumstances of the case that there was no tangible material before the revisional authority for issuing a direction to Assessing Officer to make enquiries with regard to amount of Rs.15,90,24,621/- towards deduction under Section 80IA of the Act 1961, deduction of amount of Rs.58,29,019/- under Section 80 G of the Act 1961, deduction of expenses of Rs.58,20,219/- under Section 37(1) and Freight charges of Rs.18,10,250/- under Section 80 IA of the Act 1961.” 2.The aforesaid substantial question of law has to be answered in the following factual backdrop: - 3.The respondent herein/assessee namely M/s. Vimla Infrastructure (India) Pvt. Ltd. is a company engaged in the business of development, operation and maintenance of infrastructure facilities, specifically private railway sidings/logistic parks/integrated rail systems, under contractual arrangements with the Indian Railways. The assessee filed its return of income for the assessment year 2015-16 claiming deduction under Section 80IA(4) of the IT Act to the tune of ₹ 15.90 crores as an “infrastructure facility” (Tax Case No.47/2022) developer and deduction under Section 80G of the IT Act for donation to the Prime Minister’s National Relief Fund. As pleaded, return included all the necessary documents, however, the assessment was selected for scrutiny under CASS and during the assessment, the Assessing Officer issued detailed notices under Section 142(1) of the IT Act on various dates specifically seeking justification for Section 80IA deduction which the assessee/ respondent herein replied by filing relevant document and which the Assessing Officer ultimately accepted. After considering the material, the Assessing Officer passed order under Section 143(3) of the IT Act on 29-12-2017 allowing both deductions made under Section 80IA and 80G of the IT Act, however, the Principal Commissioner of Income Tax (PCIT) has taken proceeding under Section 263 of the IT Act alleging that the AO has failed to properly examine the allowability of deduction under Section 80IA(4) of the IT Act; the donation claimed under Section 80G to the tune of 58.29 ₹ lakhs; and certain freight and railway-related (Tax Case No.47/2022) expenses to the tune of 18.10 lakhs. The PCIT ₹ vide order dated 22-3-2021 concluded that the AO’s order was erroneous and prejudicial to the interest of revenue and set aside the assessment order directing the AO to re-examine the aforesaid issues. The assessee challenged the jurisdiction of the PCIT under Section 263 of the IT Act by filing appeal before the ITAT contending that the AO had conducted adequate and specific enquiries during the assessment proceedings; Section 80IA(4) deductions had already been allowed in previous years and no new material or change in circumstances was brought to light; the PCIT had issued vague directions and had not conducted any independent enquiry or pointed out any definitive error; and once eligibility was determined and deduction allowed in initial years, the deduction for subsequent years could not be denied unless initial years were reopened or disturbed. However, the ITAT by the impugned order allowed the appeal holding that the PCIT did not carry out any independent enquiry or pinpoint any specific error in the (Tax Case No.47/2022) assessment order, the AO had conducted due diligence and applied his mind; the PCIT merely asked the AO to verify facts again, which had already been verified and this is not a valid ground under Section 263; and finally held that two conditions necessary for invocation of Section 263 i.e. the order must be erroneous and it must be prejudicial to the interest of revenue, are not satisfied. 4. Being aggrieved against the order of the ITAT setting aside the order of the PCIT and restoring the order of the AO, the Revenue has preferred this appeal in which substantial question of law has been formulated and set-out in the opening paragraph of this judgment. 5. Mr. Amit Chaudhary, learned Standing Counsel for the Income Tax Department appearing for the appellant herein/Revenue, would submit that the learned ITAT is absolutely unjustified in setting aside the order passed under Section 263 of the IT Act without verifying the facts whether the order was erroneous and prejudicial to the interest of revenue. He would rely upon the (Tax Case No.47/2022) decision of the Supreme Court in the matter of Malabar Industrial Co. Ltd. v. Commissioner of Income Tax, Kerala State1 to buttress his submission. 6. Mr. Neelabh Dubey, learned counsel appearing for the assessee Company/respondent herein through vidoe conferencing, would oppose the appeal and support the impugned order passed by the ITAT and submit that the order of the ITAT is absolutely in accordance with law, as the learned ITAT has clearly recorded that neither the order of the AO was erroneous nor it was prejudicial to the interest of revenue, therefore, the PCIT could not have invoked Section 263 of the IT Act. In that view of the matter, the appeal deserves to be dismissed and the substantial question of law be answered in favour of the assessee and against the Revenue. 7. We have heard learned counsel for the parties and considered their rival submissions made herein- above and also went through the record with utmost circumspection. 1 (2000) 2 SCC 718 (Tax Case No.47/2022) 8. In order to consider the plea raised at the Bar, it would be appropriate to notice Section 263(1) of the IT Act, which states as under: - “263. Revision of orders prejudicial to revenue.—(1) The Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or 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 or the Transfer Pricing Officer, as the case may be, 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 order thereon as the circumstances of the case justify, including,— (i) an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; or (ii) an order modifying the order under section 92CA; or (iii) an order cancelling the order under section 92CA and directing a fresh order under the said section. Explanation 1.—For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,— (a) an order passed on or before or after the 1st day of June, 1988, by the Assessing Officer or the Transfer Pricing Officer, as the case may be, shall include— (i) an order of assessment made by the Assistant Commissioner or Deputy (Tax Case No.47/2022) Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer or the Transfer Pricing Officer, as the case may be, conferred on, or assigned to, him under the orders or directions issued by the Board or by the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General or Principal Commissioner or Commissioner authorised by the Board in this behalf under section 120; (iii) an order under section 92CA by the Transfer Pricing Officer; (b) "record" shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer or the Transfer Pricing Officer, as the case may be, had been the subject- matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of Principal Commissioner or Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer or the (Tax Case No.47/2022) Transfer Pricing Officer, as the case may be, shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner,— (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. Explanation 3.—For the purposes of this section, “Transfer Pricing Officer” shall have the same meaning as assigned to it in the Explanation to section 92CA.” 9. A careful perusal of Section 263(1) of the IT Act would show that it is the essential condition to invoke Section 263 that the Commissioner must find that the order of assessment is erroneous firstly and secondly, that the order of the assessing authority is prejudicial to the interests of the revenue. The Commissioner of Income Tax has power to take into consideration (Tax Case No.47/2022) all records available at the time of examination by him. ‘Record’ would mean all records relating to proceeding available at the time of examination with the Commissioner. (See Commissioner of Income Tax, Bangalore v. Shree Manjunatheaware Packing Products & Camphore Works2.) 10.The Supreme Court in Malabar Industrial Co. Ltd. (supra) has held that two conditions precedent for exercise of the revisional power under Section 263(1) of the IT Act 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, have to be satisfied. It is further held that if one of them is absent, recourse cannot be had to Section 263(1), and observed as under: - “6. A bare reading of this provision makes it clear that the prerequisite to exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income Tax Officer is erroneous insofar as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the 2 AIR 1998 SC 1478 : (1998) 1 SCC 598 (Tax Case No.47/2022) interests of the Revenue. If one of them is absent — if the order of the Income Tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue — recourse cannot be had to Section 263(1) of the Act. 7. There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. 8. The phrase “prejudicial to the interests of the Revenue” is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy & Co. v. S.P. Jain3, the High Court of Karnataka in CIT v. T. Narayana Pai4, the High Court of Bombay in CIT v. Gabriel India Ltd.5 and the High Court of Gujarat in CIT v. Minalben S. Parikh6 treated loss of tax as prejudicial to the interests of the Revenue. 10. 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 Income Tax Officer adopted one of the 3 (1957) 31 ITR 872 (Cal) 4 (1975) 98 ITR 422 (Kant) 5 (1993) 203 ITR 108 (Bom) 6 (1995) 215 ITR 81 (Guj) (Tax Case No.47/2022) courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income Tax Officer 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 Income Tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. (See Rampyari Devi Saraogi v. CIT7 and in Tara Devi Aggarwal v. CIT8.)” 11. The principle of law laid down in Malabar Industrial Co. Ltd. (supra) has recently been followed by their Lordships of the Supreme Court with approval in the matter of Commissioner of Income-tax v. Paville Projects Pvt. Ltd.9. 12. Coming to the facts of the case in light of the aforesaid decisions, it is quite vivid that the ITAT has clearly observed that the PCIT did not carry out any independent enquiry or pinpoint any specific error in the assessment order and further held that the AO had conducted due diligence and applied his mind before passing the 7 (1968) 67 ITR 84 (SC) 8 (1973) 3 SCC 482 : 1973 SCC (Tax) 318 : (1973) 88 ITR 323 9 (2023) 453 ITR 447 (Tax Case No.47/2022) order of assessment. The ITAT has further observed that the PCIT has merely asked the AO to verify those facts again which were already verified and which is not the valid ground under Section 263 of the IT Act and furthermore, in order to invoke Section 263, it is well settled that both the conditions that the order must be erroneous and it must be prejudicial to the interest of revenue must be satisfied. The assessee had made donation to the Prime Minister’s National Relief Fund and he has also been allowed deduction for last assessment year and documents have also been filed showing that deduction has been allowed in previous year. As such, the finding recorded by the ITAT that there is no apparent error in the assessment order and it is neither erroneous nor prejudicial to the interest of revenue is the correct finding of fact based on the evidence available on record, it is neither perverse nor contrary to the record and therefore we do not find any ground to interfere with the order of the ITAT. (Tax Case No.47/2022) 13. In that view of the matter, we are of the considered opinion that both the twin conditions, namely, the order of the Assessing Officer sought to be revised is erroneous and it is prejudicial to the interests of the Revenue, are not satisfied at all to invoke the jurisdiction under Section 263 of the IT Act. As such, the learned PCIT is absolutely unjustified in invoking the jurisdiction under Section 263 of the IT Act which has rightly been set-aside by the ITAT. 14.In that view of the matter, we answer the substantial question of law in favour of the assessee and against the Revenue. 15. Consequently, the tax appeal deserves to be and is accordingly dismissed leaving the parties to bear their own cost(s). Sd/- Sd/- (Sanjay K. Agrawal) (Deepak Kumar Tiwari) Judge Judge Soma