Income Tax: ITAT Delhi Quashes PCIT’s Revision Under Section 263 against Dabur India

Dabur India Ltd.’s assessment for AY 2018-19 was completed under Section 143(3) on 29 October 2021. The Principal Commissioner of Income Tax (PCIT), later examined the assessment record and invoked Section 263 on the ground that the order was “erroneous and prejudicial to the interests of Revenue.” He argued that the Assessing Officer (AO) had made additions and disallowances on issues such as deduction under Section 35(2AB), yet no such adjustments were made in this year. He alleged inadequate verification of several claims, including Section 35 deductions, Section 80-IA/80-IC benefits, Section 80JJAA, Section 14A, and issues relating to duty drawback and ICD impact.

The assessee objected, submitting detailed documents, statutory forms, audit reports, Form 3CL, Form 10DA, Form 10CCB, and explanations. The PCIT held that the assessment was erroneous, set aside the order, enhanced the income, and directed the AO to conduct extensive fresh enquiries on multiple issues and redo the assessment. Aggrieved, Dabur appealed to the ITAT.

Issue Raised: Whether the PCIT was justified in invoking Section 263 by alleging inadequate enquiry, without recording any specific finding that the assessment order was both erroneous and prejudicial to the interests of Revenue.

ITAT Ruled: The ITAT Delhi allowed Dabur India’s appeal and quashed the PCIT’s order under Section 263. The tribunal held that the twin conditions under Section 263, error and prejudice, must coexist, as reiterated by the Supreme Court in Malabar Industrial Co. Ltd. It noted that Explanation 2 to Section 263 does not confer unfettered powers; lack of enquiry must be established from the record, not on mere suspicion.

The AO had examined all relevant documents, including financial statements, audit reports, statutory forms, and background details of long-established units claiming deductions. The PCIT had not identified any specific error, nor explained how the claims allowed were prejudicial to the Revenue. Instead, he merely issued omnibus directions for “fresh enquiries” on multiple issues, which the Tribunal described as “roving enquiries”, prohibited under law.

The PCIT’s conclusions were based on impressions rather than substantive findings, particularly regarding Section 35(2AB) where Form 3CL was missing even though the assessee had filed all documents available to it. The PCIT failed to satisfy the statutory requirements for revision; the ITAT set aside the order dated 29 March 2024 and restored the assessment made under Section 143(3).

To Read Full Judgment, Download PDF Given Below