ASHA PRADEEP KEDIA,MUMBAI vs. THE PRINCIPAL COMMISSIONER OF INCOME TAX 17, MUMBIA

This appeal by the assessee is directed against the order dated 14.01.2026 passed by the learned Principal Commissioner of Income Tax-17, Mumbai [hereinafter referred to as the ‘Ld. PCIT’] under section 263 of the Income-tax Act, 1961 (‘the Act’) for the assessment year 2018-19. The impugned revisional order arises from the assessment order dated 20.03.2024 passed under section 147 read with sections 144 and 144B of the Act.

Brief facts of the case are that the assessee, an individual, filed her return of income for the year under consideration declaring total income of Rs.8,70,670. Information was received on the Insight portal pursuant to search and survey action in the Kushal Group of Ahmedabad alleging that the group and its associates had rigged the stock market and provided accommodation entries in the form of bogus long-term capital gain and bogus short-term loss or gain. The information alleged that the assessee was one of the beneficiaries to the extent of Rs.39,90,464. Notice under section 148A(b) was issued on 27.03.2022 and, after considering the assessee’s reply, an order under section 148A(d) was passed on 23.04.2022. Notice under section 148 was thereafter issued and reassessment proceedings were taken up.

During the reassessment proceedings, notices under section 142(1), including notices dated 13.06.2023 and 16.02.2024, were issued calling for details concerning the transactions in Kushal Tradelink Limited. The assessee explained that she had not earned profit of Rs.39,90,464 as suggested in the information, but had incurred short- term capital loss of Rs.15,32,782 in that scrip. In support, she furnished 2

The Ld. PCIT initiated proceedings under section 263 on the ground that the Assessing Officer had failed to make due verification of the alleged penny-stock transaction. The assessee objected and furnished a chronological account of the reopening and reassessment proceedings together with the notices, replies and supporting documents. The Ld. PCIT, however, held that the Assessing Officer had merely accepted the assessee’s submissions; had not issued any notice to the broker or other intermediary; had not considered the investigation material; and had ignored the treatment of a loss from the same scrip in assessment year 2017-18. He accordingly held the reassessment order to be erroneous and prejudicial to the interests of the Revenue within the meaning of Explanation 2(a) to section 263, set it aside and directed a de novo assessment after enquiry into the trades in Kushal Tradelink Limited.

The learned Authorised Representative submitted that the very foundation of reopening was the transaction in Kushal Tradelink Limited and that the Assessing Officer had made specific enquiries on that precise issue. Our attention was drawn to the notices issued in the reassessment proceedings, the detailed reply dated 22.02.2024 and the documentary evidence furnished therewith. It was submitted that the assessment order expressly records the examination and analysis of those documents and the Assessing Officer’s conclusion. Therefore, this 3

The learned Departmental Representative supported the impugned order. He submitted that collection of documents was not equivalent to an effective enquiry into an alleged accommodation entry. No independent confirmation was obtained from the broker or intermediaries and the investigation material was not confronted or analysed. He further submitted that in assessment year 2017-18 a substantial short-term capital loss in the same scrip had been disallowed and, therefore, the Assessing Officer was required to undertake deeper verification. According to him, the order was rightly revised under Explanation 2(a) to section 263.

We have heard the rival submissions and perused the material available on record. Section 263 can be invoked only when the order sought to be revised is both erroneous and prejudicial to the interests of the Revenue. Explanation 2(a) deems an order erroneous and prejudicial where it is passed without making enquiries or verification which should have been made. The provision does not authorise revision merely because the Commissioner considers that still further or differently 4

The jurisdictional High Court in CIT v. Gabriel India Ltd. (supra) explained that an order cannot be termed erroneous unless it is not in accordance with law; if the Assessing Officer, acting in accordance with law, makes an assessment, the same cannot be branded erroneous merely because the Commissioner would have written a more elaborate order. It was further held that the Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. The material must show that the view taken by the Assessing Officer is unsustainable in law or that the requisite enquiry was altogether omitted.

In the present case, the reassessment was initiated only on the allegation that the assessee had received an accommodation entry through transactions in Kushal Tradelink Limited. Thus, this issue was not incidental to the reassessment; it was its sole foundation. The Assessing Officer called for specific details of the transaction. The assessee furnished the purchase and sale contract notes, broker’s ledger, bank statement, demat holding, client account, scrip-wise trade summary, computation and explanation of the source of investment. More importantly, the assessment order itself does not remain silent on the issue. The relevant conclusion recorded by the Assessing Officer reads as under:

The above recital demonstrates a specific enquiry, consideration of the evidence and a stated conclusion. The Ld. PCIT’s observation that the Assessing Officer made ‘no enquiries whatsoever’ is therefore contrary to the assessment record. The objection that no third-party notice was issued concerns the adequacy or preferred mode of enquiry. Section 263 does not confer jurisdiction to prescribe, after the event, each investigative step that the Assessing Officer ought to have taken, unless the enquiry actually made is shown to be a mere pretence or the resulting view is demonstrated to be contrary to law. The Ld. PCIT has not identified any particular document as false, any inconsistency in the demat, bank or exchange records, or any legal principle rendering the Assessing Officer’s conclusion unsustainable. Nor has he brought any independent material on record to establish that the transactions for this year were accommodation entries.

The reference to assessment year 2017-18 does not alter the position. Each assessment year is a separate unit of assessment and the genuineness and tax consequence of a transaction must be determined on the evidence pertaining to that year. A disallowance made in another year, by itself, neither disproves the documents furnished for the year under appeal nor converts an enquiry actually conducted into a case of no enquiry.

The decisions in Sesa Sterlite Ltd. [2021] 123 taxmann.com 217 (Bom) and Zuari Maroc Phosphates Ltd. [2021] 126 taxmann.com 170 (Bom), relied upon in the impugned order, do not assist the Revenue on the facts before us. In Sesa Sterlite Ltd., the Hon’ble High Court found ‘absolutely no consideration’ of the claim in the assessment order and treated it as a case of ‘no consideration’ rather than inadequate 6

In view of the above, we hold that the conditions precedent for assumption of jurisdiction under section 263 are not satisfied. The assessment order dated 20.03.2024 cannot be held erroneous and prejudicial to the interests of the Revenue merely because the Ld. PCIT considered further third-party enquiry desirable. We accordingly quash the impugned order under section 263 and restore the assessment order. Ground No.1 is allowed.

Since the assessee succeeds on the principal ground challenging the assumption of jurisdiction under section 263, adjudication of the remaining grounds questioning the validity of the underlying reassessment is rendered academic. Those grounds are therefore left open.

In the result, the appeal filed by the assessee is allowed.