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TMI Blog2023 (8) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... [ESOP expenses] claimed over and above the expenses which is debited to profit & loss account was allowed by AO without proper verification and application of mind. 3. Ld. Pr. CIT erred in law and on facts in passing impugned order on the alleged ground of AO wrongly allowing expenses claimed by the appellant u/s 37(1) of the Act to have been expended exclusively for the purpose of business and profession. 4. Ld. Pr. CIT erred in law and on facts holding scrutiny assessment order as erroneous in so far as prejudicial to the interest of revenue which was passed by AO being satisfied on due verification of the details such as entire working of ISOP expense of Rs 4,95,78,999/- including FMV of shares on date of exercise of option by the employees with complete details employee wise, their PAN, no of equity shares allotted, TDS deducted etc for allowing the expense. 5. Ld Pr. CIT grievously erred in law and on facts in holding ESOP expenses as Notional Expenses as well as a contingent liability of uncertain nature that are not an allowable expense as per law without considering the fact that such ESOP expense are ascertained liability supported by judicial precedents of various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is clear that assessee had claimed these expenses, in excess to its claim of Rs. 4,95,78,999/- under the head "Other Deductions" for the year under consideration. In light of the above observations, the Principal CIT held that the assessee had claimed expenses of Rs. 4,95,78,999/- which were not included in the current year's expenses and booked in the books of accounts through profit and loss account. The AO ought to have verified/investigated the issue and ought to have disallowed the same while finalising the assessment order for the year under consideration. Accordingly, the Principal CIT set aside the assessment order by holding the same to be erroneous and prejudicial to the interests of the Revenue. 4. The assessee is in appeal before us against the aforesaid order passed by Principal CIT. Before us, the counsel for the assessee submitted that the Principal CIT has erred in holding that there was lack of enquiry on the part of the assessee officer. It was submitted before us that the assessing officer had made complete enquiry during the course of original assessment proceedings. The counsel for the assessee drew our attention to notice dated 23-09-2019 issued under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the various notices issued by the assessing officer during the course of assessment proceedings and the assessee's reply to the same and secondly, even otherwise on merits, it has not been doubled that the aforesaid expenses are allowable expenses and there is no doubt regarding the genuineness of the same. 5. In response, the Ld. DR submitted that the assessee had launched four ESOP schemes and no separate details regarding each of the scheme was furnished to the assessing officer during the course of assessment proceedings. Further, the assessment order has also not made any quantification in the audit report regarding the aforesaid schemes. On merits, the Ld. DR submitted that there is no quantification by the assessee of the FMV of shares and further, there is no clarity as to under which of the four schemes the aforesaid expenses have been claimed. Accordingly, the Principal CIT has correctly held that the assessment order is erroneous and prejudicial to the interests of Revenue. 6. We have heard the rival contentions and perused the material on record. On going to the facts of the case, we observe that firstly the issue with respect to the claim of ESOP expenses has been e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry", that such a course of action would be open. --- From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. 10. The Mumbai ITAT in the case of Sh. Narayan Tatu Rane Vs. ITO, I.T.A. No. 2690/2691/Mum/2016, dt. 06.05.2016 examined the scope of enquiry under Explanation 2(a) to section 263 in the following words:- "20. Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provision shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld Pr. CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis-à-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X
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