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TMI Blog2022 (11) TMI 613X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment Order dated 31/03/2016 passed u/s 143(3) of the Act has already disallowed a sum of Rs 2,11,15,074/- in the total deduction claimed u/s 35(1)(i) of the Act to an extent of Rs 4,22,30,147/- and has further added a sum of Rs 1,70,01,985/- under the other sources treating the same as non agricultural income and whereby the returned loss of Rs 9,73,28,331/- has been reduced to a loss figure of Rs 5,92,11,272/-. The above action of the AO demonstrates that complete facts have been examined and order has been passed after due application of mind which gives no scope for the PCIT to invoke his powers u/s 263 of the Act. 3. On the facts and circumstances of the case the learned PCIT is not justified in giving a direction to the AO to disallow the entire expenses relating to Bio Pharma division claimed by the appellant u/s 35(2AB) of the Act to an extent of Rs 2,11,15,074/-. 4. On the facts and circumstances of the case the learned PCIT is not justified in giving a direction to the AO to disallow the expenditure of Rs 10,70,08,883/- claimed by the appellant which has been incurred in Bio- Pharma division, on the ground that no commercial activit is shown by the division in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. Therefore, it cannot be said that the assessment order passed by the AO is erroneous in so for as it is prejudicial to the interest of the revenue. 6. The PCIT, after considering the submissions of the assessee and also taken note of various facts opined that the assessment order passed by the AO without carrying out required inquiries, he ought to have been carried out became erroneous and prejudicial to the interest of the revenue, because even though the assessee has not commenced its business activity in respect to Bio-pharma division, but the AO allowed total expenditure incurred for R&D u/s. 35(1) of the Act which rendered the assessment order passed by the AO erroneous and prejudicial to the interest of the revenue. Therefore, set aside the assessment order passed by the AO and directed the Assessing Officer to redo the assessment afresh in accordance with law, considering the point discussed in the 263 proceedings. The relevant findings of the PCIT are as under: 2.3 The contentions of the Managing Director of the company were considered. It is seen that the assessee has claimed the expenses relating to bio-pharma division as deduction u/ s 35(2AB) of the I.T. Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture including interest on term loan which was capitalized till 31.03.2012 which is evident from P&L account and balance sheet as on 31.03.2012 ....... . .......... According to section 37(1) any expenditure (not being expenditure of the nature described in section 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purpose of the business or profession shall be allowed in computing the income chargeable under the head "Profits and Gains of business or profession... division which is set off by the assessee against income earned from floriculture business is not allowable. 3. As per the recent amendment by the Finance Act, 2015 w.e.f. 01.06.2015 "An order passed by the assessing officer 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 Commissioner or Commissioner (a) the order is passes without making inquiries or verification which should have been made. (b) the order is passed allowing any relief without inquiring into the claim". 4. It is seen that the issues discussed above were not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is erroneous and prejudicial to the interest of the revenue. In order to invoke jurisdiction u/s. 263 of the Act, twin conditions embedded therein must be satisfied i.e., (i) the order passed by the AO must be erroneous and (ii) and further it should be prejudicial to the interest of the revenue. Unless these two conditions embedded therein satisfied, the PCIT cannot invoke his jurisdiction and revise the assessment order and this legal principle is supported by plethora of jurisdictional precedence including the Hon'ble Supreme Court in the case of Malabar Industrial Co. vs CIT, 243 ITR 83 (SC). In the light of above legal position, if you examine the facts of the case, one has to understand whether the AO has carried out required inquires which he ought to have been carried out, in the given facts and circumstances of this case, more particularly after insertion of explanation (2) to section 263 of the Act by the Finance Act, 2015 w.e.f 01.06.2015, where it has been clarified that the order passed by the AO shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue, if, in the opinion of the PCIT the order is passed without making inquiries and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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